Price by ert554898

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									      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 Has Many Names

•   Rent
•   Fee
•   Commission
•   Tuition
•   Salary
•    Wage
•   Interest
•   Tax
•   Bribe
• Price and the Marketing Mix:
  – Only element to produce
    revenues
  – Most flexible element
  – Can be changed quickly
• Common Pricing Mistakes
  – Reducing prices too quickly to
    get sales
  – Pricing based on costs, not
    customer value
     Too Much Price-Cutting Erodes Profits

$100 list price

              $100          10% price cut
                             new price = $90
 Cost per unit = $80
                                           50% profit
                                           margin cut
                  $60


                  $40
            Profit
                                     $20
                  $20                           $10
Factors to Consider When Setting
              Price

                     Internal
                      Factors


          External
          Factors


                           Pricing
Factors to Consider When Setting Price


    Internal Factors
                               –   Survival
•   Marketing objectives       –   Current profit maximization
•   Marketing mix strategies   –   Market share leadership
•   Costs                      –   Product quality leadership

•   Organizational
    considerations
Factors to Consider When Setting Price


    Internal Factors
•   Marketing objectives       • Pricing must be carefully
                                 coordinated with the other
•   Marketing mix strategies     marketing mix elements
•   Costs
•   Organizational
    considerations
Factors to Consider When Setting Price


    Internal Factors
•   Marketing objectives       • Types of costs:
                                  – Variable
•   Marketing mix strategies
                                  – Fixed
•   Costs                         – Total costs
•   Organizational
    considerations
Factors to Consider When Setting Price


    Internal Factors
                               • Who sets the price?
•   Marketing objectives          – Small companies: CEO or top
                                     management
•   Marketing mix strategies      – Large companies: Divisional
•   Costs                            or product line managers
•   Organizational             • Price negotiation is common in
                                 industrial settings where pricing
    considerations
                                 departments may be created
Factors to Consider When Setting Price


   External Factors
                                • Types of markets
                                   – Pure competition
• Nature of market and
                                   – Monopolistic competition
  demand
                                   – Oligopolistic competition
• Competitors’ costs, prices,      – Pure monopoly
  and offers                    • Price-demand relationship
• Other environmental              – Demand curve
  elements                         – Price elasticity of demand
Factors to Consider When Setting Price


   External Factors
                                • Pricing strategy influences the
                                  nature of competition
• Nature of market and
                                   – Low-price low-margin strategies
  demand                              inhibit competition
• Competitors’ costs, prices,      – High-price high-margin
  and offers                          strategies attract competition
• Other environmental           • Benchmarking costs against the
                                  competition is recommended
  elements
Factors to Consider When Setting Price


   External Factors             • Economic conditions
                                   – Affect production costs
                                   – Affect buyer perceptions of
• Nature of market and                price and value
  demand                        • Reseller reactions to prices must
• Competitors’ costs, prices,     be considered
  and offers                    • Government may restrict or limit
• Other environmental             pricing options
  elements                      • Social considerations may be
                                  taken into account
     General Pricing Approaches
• Cost-Based Pricing
• Value-Based Pricing
• Competition-Based Pricing




                          Price ceiling and floor
          New Product Pricing Strategies
• Market-Skimming Pricing
  – Setting a high price for a new product to skim maximum
    revenues layer by layer from segments willing to pay the
    high price.
         Quality of the product?
         Number of buyers?
         Cost of producing in smaller volume?
         Market entrance?
• Market-Penetration Pricing
  – Setting a low price for a new product in order to attract a
    large number of buyers and a large market share.
         Price sensitivity?
         Production and distribution cost?
  Fixed Pricing vs Dynamic Pricing
• Fixed pricing: set one   • Dynamic Pricing:
  price for all buyers       charging different prices
                             depending on individual
                             customers and
                             situations




                                           Dynamic Pricing
       Price Adjustment Strategies

1. Discount / allowance     2. Segmented
• Types of discounts        • Types of segmented pricing
    – Cash discount           strategies:
    – Quantity discount         –   Customer-segment
                                –   Product-form pricing
    – Seasonal discount
                                –   Location pricing
• Allowances                    –   Time pricing
    – Trade-in allowances
        Price Adjustment Strategies

                                     4. Promotional
                                     Temporarily pricing products
                                     below the list price or even below
                                     cost
3. Psychological                          Loss leaders
                                          Special-event pricing
   – Price-quality relationship
                                          Cash rebates
   – Reference prices
                                          Low-interest financing, longer
   – Differences as small as five         warranties, free maintenance
     cents can be important
   – Numeric digits may have
     symbolic and visual qualities
     that psychologically            5. International
     influence the buyer
     e.g. 8 or 7
  Contemproray Pricing Strategies
• Opening Price:
Please watch the short video on Walmart “The
  strategy:low cost & go global” chapter 3

http://www.pbs.org/wgbh/pages/frontline/view
  /

								
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