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