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7/31/2019 mkt 101 chap 10
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Click to edit Master subtitle style
7/29/12
Principles of Marketing
Chapter Ten :PricingConsiderations andApproaches
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Price
Price is the sum of all the values thatconsumers exchange for the benefits ofhaving or using the product or service.
Price has been the major factor affectingbuyer choice; non-price factors have becomeincreasingly important in buyer-choicebehavior.
Price is the only element in the marketing mixthat produces revenues; all others representcosts.
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When is price set?
1. New product
2. Regular product in new channel
3. New bids & contract
Consumer Psychology and Pricing
1. Reference prices
2. Price Quality-Inferences
3. Price ques
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Factors to Consider When SettingPrices
44
Mkt. strategy, Objectives andmix
Nature of the market and
demand
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Value based pricing vs.Cost based pricing
55
Product
Cost
Price
Value
Custome
rs
C
ustom
er
Value
Price
Cost
Produc
t
Cost-Based Pricing Value-Based Pricing
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Value-Based Pricing
Good-Value Pricing:
Offering just the right combination of quality and good
service at a fair price.
Value Added Pricing:
Attaching value-added features and services todifferentiate a companys offers and to supportcharging higher prices.
66
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Competition-Based Pricing
77
Settin
gPrice
s
Sea
le
d-B
id
Comp
a
nySet s
Prices
Base
d
on
What
The
y
Thin
k
Compe
titor
s
Will
Charge
.
Going
-Rate
Comp
a
nySets
Prices
Based
on
What
Compe
titors
Are
Charg
i
ng.
?
?
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Types of Cost Factors thatAffect Pricing Decisions
88Total Costs
Sum of the Fixed and Variable Costsfor a Given
Variable Costs
Costs that do varydirectly with the
level of production.Raw materials
Fixed Costs(Overhead)
Costs that dontvary with sales orproduction levels.
Executive Salaries, Rent
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Cost-Based Pricing
Variable cost 10 Fixed cost300,000
Expected Sales 50,000 Desired SalesMark Up 20%
Variable cost +Fixed Cost/Unit Sales =
Unit cost
Tk. 10+300,000/50,000=Tk. 16 per
unit
99
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Cost-Based Pricing
1010
Certainty AboutCosts
Pricing isSimplified
Price CompetitionIs Minimized
Unexpected
Situa
tional
Fac
tors
Attitudes
of
Others
Ethical
IgnoresCurrent
Demand &Competition
Cost-Plus Pricing
is an ApproachThat Adds a
Standard Markupto the Cost of the
Product.
Simplest
PricingMethod
Much Fairer to Buyers
& Sellers
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Breakeven Analysis or Target ProfitPricing
1111
2
4
6
8
10
12
200 400 600 800 1,000
TotalRevenue
TotalCost
FixedCost
Target Profit($2 million)
Sales Volume in Units(thousands)
Costin
Dollars(millions)
Tries to Determine the Price at Which aFirm Will Break Even or Make a Certain Target
Profit.
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Other Factors Affecting Price Decisions( Fig. 10.1)
1212
Internal Factors
MarketingObjectivesMarketing MixStrategyOrganizationalconsiderations
External Factors
Nature of themarketand demand
CompetitionOther
environmentalfactors (economy,resellers,
government)
PricingDecisions
I t l F t Aff ti
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Internal Factors AffectingPricing Decisions: Marketing
Objectives
1313
Marketing
Objectives
SurvivalLow Prices to Cover Variable Costs
and
Some Fixed Costs to Stay inBusiness.
Current Profit MaximizationChoose the Price that Produces
the Maximum Current Profit, Etc.
Market Share LeadershipLow as Possible Prices to Become
the Market Share Leader.
Product Quality LeadershipHigh Prices to Cover Higher
Performance Quality and R & D.
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Internal Factors Affecting PricingDecisions: Marketing Objectives
Other specific objectives include:
Set prices low to prevent competition from
entering the market,Prices might be reduced temporarily to create
excitement or draw more customers.
Nonprofit and public organization may have
other pricing objectives such as:
University aims for partial cost recovery,
Hospital may aim for full cost recovery,
Theater may price to fill maximum number of
1414
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External Factors Affecting PricingDecisions
1515
Mar
k
et
and
Dem
a
nd
Comp
etitor
s
Costs,
Price
s
,and
Offer s
Othe
r
Exter n
al
Facto
rs
Econo
m
ic
Condi tio
n
s
Reselle
r
Needs
Governm
e
ntActio
ns
Socia
l
Conce
rns
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External Factors to ConsiderWhen Setting Prices
The Market and Demand
Before setting prices, the marketer mustunderstand the relationship between
price and demand for its products
1616
10-27
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Market and Demand Factors AffectingPricing Decisions
1717
PureCompetitionMany Buyersand Sellers
Who Have LittleEffect on thePrice
MonopolisticCompetitionMany Buyersand SellersWho Trade
Over aRange of Prices
Pricing in Different Types of Markets
OligopolisticCompetitionFew Sellers Who
AreSensitive to Each
OthersPricing/ Marketing
PureMonopolySingle Seller
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Factors to Consider WhenSetting Prices
Other Internal and External ConsiderationsAffecting Price Decisions
The demand curve shows the number of unitsthe market will buy in a given period atdifferent prices
Normally, demand and price are inverselyrelated
Higher price = lower demand
For prestige (luxury) goods, higher price canequal higher demand when consumers
perceive higher prices as higher quality
1818
10-31
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Factors to Consider WhenSetting Prices
Other Internal and External ConsiderationsAffecting Price Decisions
Price elasticity of demand illustrates the response ofdemand to a change in price
Inelastic demand occurs when demand hardly changes when
there is a small change in price
Elastic demand occurs when demand changes greatly for asmall change in price
price elasticity of demand= % change in quantity demand
1919
10-32
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External Factors to ConsiderWhen Setting Prices
Competition strategies and prices
Factors to consider
Comparison of offering in terms of customervalue
Strength of competitors
Competition pricing strategies
Customer price sensitivity 2020
10-34
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External Factors to ConsiderWhen Setting Prices
Other external factors
Economic conditions
Resellers response to price
Government
Social concerns
2121
10-35