Pricing: Principles of Marketing, Seventh Canadian Edition

Chapter 11
Pricing
Copyright © 2008 Pearson Education Canada Principles of Marketing, Seventh Canadian Edition
Learning Goals
• Identify and define the internal factors affecting a
firm’s pricing decisions
• Identify and define the external factors affecting
pricing decisions, including the impact of consumer
perceptions of price and value
• Contrast the two general approaches to setting
prices
• Discuss how companies adjust their prices to take
into account different types of customers and
situations
• Discuss the key issues related to initiating and
responding to price changes
Copyright © 2008 Pearson Education Canada 11-2 Principles of Marketing, Seventh Canadian Edition
Factors
Factors to
to Consider
Consider When
When Setting
Setting Prices
Prices
Price is the Amount of Money Charged for a Product or

.Service
Internal
InternalFactors
Factors
Pricing
Pricing
Decisions
Decisions
External
ExternalFactors
Factors
Internal
Internal Factors
Factors Affecting
Affecting Pricing
Pricing Decisions
Decisions
Marketing
Objectives
Marketing-Mix
Strategy
Costs
Organizational
Considerations
Marketing
Marketing Objectives
Objectives that
that Affect
Affect Pricing
Pricing Decisions
Decisions
Survival
Survival
Low
LowPrices
PricestotoCover
CoverVariable
VariableCosts
Costsand
and
.Some Fixed Costs to Stay in Business
.Some Fixed Costs to Stay in Business
Current
CurrentProfit
ProfitMaximization
Maximization
Choose
Choosethe
thePrice
Pricethat
thatProduces
Producesthe
the
Marketing
Marketing .Maximum
.Maximum Current Profit, Cash Flow orROI
Current Profit, Cash Flow or ROI
Objectives Market
MarketShare
ShareLeadership
Leadership
Objectives
Low
LowasasPossible
PossiblePrices
PricestotoBecome
Become
.the Market Share Leader
.the Market Share Leader
Product
ProductQuality
QualityLeadership
Leadership
High
HighPrices
PricestotoCover
CoverHigher
Higher
.Performance
.Performance Quality andRR&&DD
Quality and
Marketing
MarketingMix
MixVariables
Variablesthat
that Affect
Affect Pricing
PricingDecisions
Decisions
Companies Will Consider Price Along With All the Other Marketing-Mix
Elements When Developing the Marketing Program. Price Must be
:Coordinated With
Product
ProductDesign
Design
Marketing-Mix
Non-Price
Non-Price Strategy Distribution
Distribution
Factors
Factors
Promotion
Promotion
Types
Types of
of Cost
Cost Factors
Factors that
that Affect
Affect Pricing
Pricing Decisions
Decisions
Fixed Costs Variable Costs

)Overhead(
Costs that don’t Costs that do vary
vary with sales or directly with the
.production levels .level of production
Executive Salaries Raw materials
Rent
Total
TotalCosts
Costs
Sum
Sumof
ofthe
theFixed
Fixedand
andVariable
VariableCosts
Costsfor
foraaGiven
Given
Level
Levelof
ofProduction
Production
External
External Factors
Factors Affecting
Affecting Pricing
Pricing
Decisions
Decisions
Market and
Demand
Competitors’ Costs,
Prices, and Offers
Other External Factors

Economic Conditions
Reseller Needs
Government Actions
Social Concerns
Market
Market and
and Demand
Demand Factors
Factors that
that Affect
Affect Pricing
Pricing Decisions
Decisions
Pure
Pure Competition
Competition Monopolistic
Monopolistic Competition
Competition
Many
ManyBuyers
BuyersandandSellers
SellersWho
Who Many
ManyBuyers
Buyersand
andSellers
SellersWho
Who
Have
HaveLittle
LittleEffect
Effecton
onthe
thePrice.
Price. Trade
TradeOver
OveraaRange
Rangeof
ofPrices.
Prices.
Pricing
Pricing in
in Different
Different Types
Types of
of Markets
Markets
Oligopolistic
Oligopolistic Competition
Competition Pure
Few Pure Monopoly
Monopoly
FewSellers
SellersWho
WhoAre
AreSensitive
Sensitiveto
toEach
Each Single
Other’s SingleSeller
Seller
Other’sPricing/
Pricing/Marketing
MarketingStrategies
Strategies
Price
Price Elasticity
Elasticity of
of
Demand
Demand - A. Inelastic Demand
Demand Hardly Changes With
.a Small Change in Price
P2
Price
P1
Q2 Q 1
Quantity Demanded per Period
- B. Elastic Demand
Demand Changes Greatly With
.a Small Change in Price
P’2
Price
P’1
Q2 Q1
Quantity Demanded per Period
Figure 11.5
Major Considerations in
Setting Price
What
What isis Cost-Plus
Cost-Plus Pricing
Pricing and
and Why
Why isis itit
Popular?
Popular?
.Adding a Standard Markup to the Cost of the Product
Sellers
SellersAre
AreMore
More Minimizes
Minimizes
Certain
CertainAbout
About Price
Price
Costs
CostsThan
Than Competition
Competition
Demand
Demand
Perceived
Perceived
Fairness
Fairnessto
to
Both
BothBuyers
Buyers
and
andSellers
Sellers
General Pricing Approaches
• Figure 11.6
Break-Even Chart for Determining Price
Cost-Based versus
Value-Based Pricing
Setting
Setting Initial
Initial Product
Product Prices
Prices
Market
Market Skimming
Skimming Market
Market Penetration
Penetration
> Setting a High Price > Setting a Low Price

for a New Product for a New Product in
to Skim Maximum Order to Attract a
Revenues from the Large Number of
Target Market. Buyers.
> Results in Fewer, > Results in a Larger
More Profitable Market Share.
Sales. > Walmart
> Intel’s $1,000 Chip
Skimming Pricing Example
• Most consumer
electronic products
enter at a high price
with skimming.
• For example, the iPod
entered around $259 in
2004. Check the
current price at
amazon.com
Price-Adjustment
Price-Adjustment Strategies
Strategies
• Adjusting Prices for

Psychological Pricing Psychological Effect.
• Price Used as a Quality
Indicator.
• Reference Prices i.e.
Clothing.
• Temporarily Reducing Prices

Promotional Pricing to Increase Short-Run Sales.
• i.e. Loss Leaders, for
Special-Events, Cash Rebates
Price-Adjustment
Price-Adjustment Strategies
Strategies
• Adjusting Prices to Account
Geographical Pricing for the Geographical Location

.of Customers
-i.e. FOB-Origin, Uniform •
.Delivered, Zone Pricing, etc
• Adjusting Prices for

International Pricing .International Markets
• Price Depends on Costs,
Consumers, Economic
Conditions & Other Factors.
Initiating
Initiating and
and Responding
Responding to
to Price
Price
Changes
Changes
Competitor
Reactions Initiating
to Price Cuts
Price Changes
Price
Changes
Buyer Reactions Initiating

to Price
Price Increases
Changes
Figure 11.8
Assessing and Responding to
Competitors’
Price Changes
Kellogg’s Responds to
Price Cuts
• In 1996, Kraft
announced 20%
across the board
price cut.
• Kellogg’s
followed with
19% cut.
• Kellogg’s also
introduced
lower price
bagged cereal.

Pricing: Principles of Marketing, Seventh Canadian Edition

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Pricing: Principles of Marketing, Seventh Canadian Edition

Uploaded by

Copyright:

Available Formats

Chapter 11

Price is the Amount of Money Charged for a Product or

Fixed Costs Variable Costs

Other External Factors

.Adding a Standard Markup to the Cost of the Product

> Setting a High Price > Setting a Low Price

• Adjusting Prices for

• Temporarily Reducing Prices

• Adjusting Prices to Account

Geographical Pricing for the Geographical Location

• Adjusting Prices for

Buyer Reactions Initiating

You might also like