Pricing Concepts

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What is Price?

Price is that which is given

up in an exchange to
acquire a good or service.

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The Importance of Price 1
to Marketing Managers

The price charged to customers

Revenue multiplied by the
number of units sold.

Profit Revenue minus expenses

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Trends Influencing Price Setting
High rate of
new product introduction

Increased availability of
bargain-priced dealer and
Trends generic brands
in the
Market Price cutting as a strategy to
maintain or regain
market share

More efficient and better

informed buyers
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Pricing Objectives

Profit-Oriented Pricing Objectives

Sales-Oriented Pricing Objectives

Status Quo Pricing Objectives

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Profit-Oriented Pricing Objectives

Profit-Oriented Pricing Objectives

Target
Profit Satisfactory
Return on
Maximization Profits
Investment

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Sales-Oriented Pricing Objectives

Sales-Oriented Pricing Objectives

Market Sales
Share Maximization

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Status Quo Pricing Objectives

Status Quo Pricing Objectives

Maintain Meet
existing competition’s
prices prices

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Demand and Supply

The quantity of a product that

Demand will be sold in the market at various
prices for a specified period.

The quantity of a product

that will be offered to the market
Supply by a supplier at various prices
for a specific period.

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Elasticity of Demand

Consumers’ responsiveness
or sensitivity to changes
in price.

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Elasticity of Demand
Elastic  Consumers buy more or less
of a product when the
Demand price changes

Inelastic  An increase or decrease in

price will not significantly
Demand affect demand

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Elasticity of Demand
Price Goes... Revenue Goes... Demand is...

Down Up Elastic

Down Down Inelastic

Up Up Inelastic

Up Down Elastic

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Factors that Affect Elasticity

Availability of Substitutes

Price relative to
Purchasing Power

Factors Product Durability

That Affect
Elasticity
of Product’s Other Uses
Demand
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The Cost Determinant of Price

Methods used to set price

Markup pricing Break-even pricing

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Markup Pricing
The cost of buying the product from
Markup the producer plus amounts for
Pricing profit and for expenses not
otherwise accounted for.

Example:
If a pen costs $1.80 and sells for is
$2.20, the markup is $.40, or 22% of
cost

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Break-Even Pricing
Total Revenue
4,000 Total Costs
Break-even point
Price

2,000
Fixed costs

0 1,000 2,000 3,000 4,000 5,000 6,000

Quantity
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Other Determinants of Price
Stages of the
Product Life Cycle

Competition
Other Factors
That
Influence Distribution Strategy
Price

Promotion Strategy

Perceived Quality
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Prestige Pricing

Charging a high price to

help promote a high-quality
image.

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Choosing a Price Strategy

Price Skimming

Basic Strategies
for Penetration Pricing
Setting Prices

Status Quo Pricing

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Penetration Pricing
Advantages Disadvantages

 Discourages or blocks  Requires gear up for

competition from mass production
market entry
 Selling large volumes
at low prices
 Strategy to gain
market share may fail

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The Legality and Ethics of 8
Price Strategy
Unfair Trade Practices

Price Fixing

Issues Price Discrimination

That Limit
Pricing
Decisions Predatory Pricing

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Tactics for Fine-Tuning 9
the Base Price
Quantity Discounts

Cash Discounts

Functional Discounts

Seasonal Discounts
Common Promotional Allowances
Tactics
for Rebates
Fine-Tuning
the Base Price Value-Based Pricing

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Special Pricing Tactics
Single-Price Tactic All goods offered at the same price
Flexible Pricing Different customers pay different price
Professional Used by professionals with experience,
Services Pricing training or certification
Leader Pricing Sell product at near or below cost
Lure customers through false or misleading
Bait Pricing price advertising
Odd-number prices imply bargain
Odd-Even Pricing Even-number prices imply quality
Combining two or more products in a
Price Bundling single package
Two-Part Pricing Two separate charges to consume a single good

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