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Principles of Marketing
Lecture-24
Summaryof
Lecture-23
Product
Today’s Topics
What is Price?
Price Has Many NamesPrice Has Many Names
Rent
Fee
Rate
Commission
Tuition
Fare
Toll
Premium
Bribe
Salary
Wage
Interest
Tax
Definition
Price–The amount of money charged for a product or service, or the sum of the values that consumers exchange for the benefits of having or using the product or service.
Price is the sum of all the values that consumers exchange for the benefits of having or using the product or service.
Price is the only element in the marketing mix that produces revenues; all others represent costs.
Dynamic Pricing
Charging different prices depending on individual customers and situations.
Factors Affecting Price Decisions
Internal FactorsInternal Factors
PricingDecisionsPricing
Decisions
External FactorsExternal Factors
Target Market
Positioning Objectives
Internal Factors
Marketing Objectives
Marketing Mix Strategy
Costs
Organizational
considerations
Internal Factors
Marketing Objectives
Marketing Mix Strategy
Costs
Organizational
considerations
External Factors
Nature of the market and demand
Competition
Other environmental
factors (economy, resellers, government)
External Factors
Nature of the market and demand
Competition
Other environmental
factors (economy, resellers, government)
PricingDecisions
PricingDecisions
Internal Factors Affecting Pricing
Decisions
Marketing Objectives
Marketing-MixStrategy
Costs
OrganizationalConsiderations
Marketing Objectives that Affect Pricing
Decisions
MarketingObjectives
MarketingObjectives
SurvivalLow Prices to Cover Variable Costs andSome Fixed Costs to Stay in Business.
SurvivalLow Prices to Cover Variable Costs andSome Fixed Costs to Stay in Business.
Current Profit MaximizationChoose the Price that Produces the
Maximum Current Profit, Cash Flow or ROI.
Current Profit MaximizationChoose the Price that Produces the
Maximum Current Profit, Cash Flow or ROI.
Market Share LeadershipLow as Possible Prices to Become
the Market Share Leader.
Market Share LeadershipLow as Possible Prices to Become
the Market Share Leader.
Product Quality Leadership
High Prices to Cover Higher Performance Quality
Product Quality Leadership
High Prices to Cover Higher Performance Quality
Marketing Mix Variables that Affect
Pricing Decisions
Marketing-Mix Strategy
Product Designand Quality
Product Designand Quality
DistributionDistribution
PromotionPromotion
Non-Price Factors
Non-Price Factors
Pricing must be carefully coordinated with the other marketing mix elements
Target costing is often used to support product positioning strategies based on price
Costs
Set the floor for the price
Cover total costs - fixed plus variable costs
Fixed costs
–do not vary with production volume
Variable costs
–vary directly with production volume
Types of Cost Factors that Affect Pricing Decisions
Total CostsSum of the Fixed and Variable Costs for a Given
Level of Production
Total CostsSum of the Fixed and Variable Costs for a Given
Level of Production
Variable Costs
Costs that do varydirectly with the
level of production.
Raw materials
Variable Costs
Costs that do varydirectly with the
level of production.
Raw materials
Fixed Costs(Overhead)
Costs that don’tvary with sales or production levels.
Executive SalariesRent
Fixed Costs(Overhead)
Costs that don’tvary with sales or production levels.
Executive SalariesRent
Fixed Costs
Rent
Depreciation
Manager’s salaries
Property taxes
Insurance
Fixed Costs Variable Costs
Raw materials
Component parts
Hourly wages
Packaging & freight
Sales commissions
Rent
Depreciation
Manager’s salaries
Property taxes
Insurance
How costs vary at different production levels will influence price setting
Organizational considerations
Who sets the price?
–Small companies: CEO or top management
–Large companies: Divisional or product line managers
Price negotiation is common in industrial settings
Some industries have pricing departments
External factors affecting Pricing
decisions
Market andDemand
Competitors’ Costs, Prices, and Offers
Other External FactorsEconomic Conditions
Reseller NeedsGovernment Actions
Social Concerns
The Market and Demand factors that
affect Pricing decisions
Pure CompetitionMany Buyers and Sellers WhoHave Little Affect on the Price.
Pure CompetitionMany Buyers and Sellers WhoHave Little Affect on the Price.
Monopolistic CompetitionMany Buyers and Sellers Trading
Over a Range of Prices.
Monopolistic CompetitionMany Buyers and Sellers Trading
Over a Range of Prices.
Oligopolistic CompetitionFew Sellers Each Sensitive to Other’s
Pricing/ Marketing Strategies
Oligopolistic CompetitionFew Sellers Each Sensitive to Other’s
Pricing/ Marketing Strategies
Pure MonopolySingle Seller
Pure MonopolySingle Seller
Different Types of MarketsDifferent Types of Markets
Consumer Perception of Price and Value
Pricing decision must be buyer/ consumer oriented
Price-Demand Relationships
The Demand Determinant of Price
D
D
Quantity
Pri
ce
Demand Curves
Price Elasticity of Demand
How quantity demanded responds to price changes
Pri
ce
Quantity Demanded per Period
A. Inelastic Demand - Demand Hardly Changes Witha Small Change in Price.
P2
P1
Q1Q2
Pri
ce
Quantity Demanded per Period
P’2
P’1
Q1Q2
B. Elastic Demand -Demand Changes Greatly Witha Small Change in Price.
Elastic demand–price changes affect demand–total revenue falls when price
increases–total revenue increases when price
falls
Inelastic demand–price changes do not affect demand–total revenue increases when price
increases–total revenue falls when price falls
Competitors’ costs, prices, and offers
Consider competitors’ costs, prices, and possible reactions when developing a pricing strategy
Pricing strategy influences the nature of competition
– Low-price low-margin strategies inhibit competition
– High-price high-margin strategies attract competition
Benchmarking costs against the competition is recommended
Other environmental elements
Economic conditions–Affect production costs –Affect buyer perceptions of price
and value Reseller reactions to prices must
be considered Government may restrict or limit
pricing options Social considerations may be taken
into account
Enough for today. . .
Summary
What is Price?
Price Has Many NamesPrice Has Many Names
Rent
Fee
Rate
Commission
Tuition
Fare
Toll
Premium
Bribe
Salary
Wage
Interest
Tax
Price–The amount of money charged for a product or service, or the sum of the values that consumers exchange for the benefits of having or using the product or service.
Factors Affecting Price Decisions
Internal FactorsInternal Factors
PricingDecisionsPricing
Decisions
External FactorsExternal Factors
Target Market
Positioning Objectives
Next….
Pricing (cont..)
Principles of Marketing
Lecture-24