Pricing Products Pricing Considerations and Strategies

							                         10-1




     Chapter 10



Pricing Considerations
   and Approaches
                                                    10-2
Factors to Consider When Setting
Prices
 Price is the Amount of Money Charged for a Product or
                        Service.

                    Internal Factors




                        Pricing
                       Decisions




                    External Factors
Internal Factors Affecting Pricing   10-3


Decisions

                 Marketing
                 Objectives

               Marketing-Mix
                 Strategy


                   Costs

               Organizational
               Considerations
External Factors Affecting Pricing   10-4


Decisions

                 Market and
                  Demand

             Competitors’ Costs,
              Prices, and Offers

            Other External Factors
             Economic Conditions
                Reseller Needs
             Government Actions
               Social Concerns
Market and Demand Factors that                                           10-5


Affect Pricing Decisions
      Pure Competition                   Monopolistic Competition
  Many Buyers and Sellers Who            Many Buyers and Sellers Who
  Have Little Effect on the Price.       Trade Over a Range of Prices.




             Pricing in Different Types of Markets




   Oligopolistic Competition                  Pure Monopoly
Few Sellers Who Are Sensitive to Each
                                                 Single Seller
 Other’s Pricing/ Marketing Strategies
Price Elasticity of Demand                                      10-6


                                       A. Inelastic Demand -
                                       Demand Hardly Changes With
                                       a Small Change in Price.
   Price

           P2
           P1



                               Q2 Q1
                Quantity Demanded per Period
                                       B. Elastic Demand -
                                       Demand Changes Greatly With
                                       a Small Change in Price.
   Price




           P’2
           P’1



                        Q2                   Q1
                 Quantity Demanded per Period
What is Cost-Plus Pricing and Why                  10-7


is it Popular?
 Adding a Standard Markup to the Cost of the Product.



       Sellers Are More              Minimizes
        Certain About                  Price
         Costs Than                 Competition
           Demand

                       Perceived
                      Fairness to
                      Both Buyers
                      and Sellers
                                                                                                  10-8
Breakeven Analysis or Target Profit
Pricing
                               Tries to Determine the Price at Which a Firm Will
                                   Break Even or Make a Target Profit
  Cost in Dollars (millions)




                                                                           Total Revenue

                                                                                     Target Profit
                                12                                                    ($2 million)
                                10                                                   Total Cost
                                 8
                                 6                                                   Fixed Cost
                                 4
                                 2
                                 0

                                       200       400       600      800         1,000
                                       Sales Volume in Units (thousands)
Cost-Based Vs. Value-Based Pricing        10-9


   Cost-Based Pricing   Value-Based Pricing

        Product             Customer



         Cost                 Value



         Price                Price



        Value                 Cost


      Customers             Product