Chapter 17
Pricing Concepts
What is Price?
The value attached to the product or service
Value: the “worth” based on perceived benefits
What is given up in exchange for the good or
service
Currency; credit
Barter: exchange of products for something other
than money
The Importance of Price to
Marketing Managers
The price charged to
Revenue customers multiplied by the
number of units sold.
Profit Revenue minus expenses.
Fundamentals of Pricing
Determine pricing
objectives
Know the importance of
price to the target
market
Know your demand
Understand your costs
Determine the pricing
strategy
Pricing Objectives
Profit Orientation
Sales orientation
Status Quo orientation
Societal orientation
The Demand Determinant of Price
The quantity of a product that
will be sold in the market at
Demand
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.
The Demand Curve
The Supply Curve
How Demand and Supply Establish Price
Price The price at which demand
Equilibrium and supply are equal.
Consumers’ responsiveness
Elasticity
of Demand
or sensitivity to changes
in price.
Price Equilibrium
Elasticity of Demand
Elastic Consumers buy more or less
Demand of a product when the
price changes.
Inelastic An increase or decrease in
Demand price will not significantly
affect demand.
An increase in sales exactly
Unitary offsets a decrease in prices,
Elasticity and revenue is unchanged.
Evaluating a Customer’s Price
Sensitivity
Are there substitute ways of meeting a need?
Is it easy to compare prices?
Who pays the bill?
How great is the total expenditure?
How significant is the end benefit?
Is there already a sunk investment related to the
purchase?
The Cost Determinant of Price
Types of Costs
Variable
Fixed Cost
Cost
Varies with changes Does not change
in level of output as level of output changes
The Cost Determinant of Price
Markup pricing
Keystoning
Methods
Used to
Set Prices Profit Maximization
Pricing
Break-Even
Pricing
Break-Even Pricing