Chapter 10- slide 1 Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Chapter Ten Pricing: Understanding and Capturing Customer Value

Chapter 10- slide 2 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Pricing Concepts Understanding and Capturing Customer Value What Is a Price? Customer Perceptions of Value Company and Product Costs Other Internal and External Considerations Affecting Price Decisions Topic Outline

Chapter 10- slide 3 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall The challenge is to find the price that will let the company make a fair profit by getting paid for the customer value it creates. Price is the amount of money charged for a product or service. It is the sum of all the values that consumers give up in order to gain the benefits of having or using a product or service. What Is a Price?

Chapter 10- slide 4 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Price is the only element in the marketing mix that produces revenue; all other elements represent costs It is one of the most flexible marketing mix elements What Is a Price?

Chapter 10- slide 5 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Factors to Consider When Setting Prices Understanding how much value consumers place on the benefits they receive from the product and setting a price that captures that value Customer Perceptions of Value

Chapter 10- slide 6 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall One frequent problem is that companies are too quick to reduce prices. Other common mistake include pricing that is too cost oriented rather than customer value oriented Pricing that doesn’t take the rest of the marketing mix into account is a big mistake too.

Chapter 10- slide 7 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall ________is the sum of values that consumers exchange for the benefits of having or using a product or service. 1.Place 2.Purchase 3.Price 4.Premium

Chapter 10- slide 8 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall ________is the sum of values that consumers exchange for the benefits of having or using a product or service. 1.Place 2.Purchase 3.Price 4.Premium

Chapter 10- slide 9 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Factors to Consider When Setting Prices Customer Perceptions of Value

Chapter 10- slide 10 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Factors to Consider When Setting Prices Value-based pricing uses the buyers’ perceptions of value, not the sellers cost, as the key to pricing. Price is considered before the marketing program is set. Value-based pricing is customer driven Cost-based pricing is product driven Customer Perceptions of Value

Chapter 10- slide 11 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Setting your price based on your customer’s perception of value rather than on your cost is called _____________pricing. 1.value-based 2.cost-based 3.price-based 4.demand-based

Chapter 10- slide 12 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Setting your price based on your customer’s perception of value rather than on your cost is called _____________pricing. 1.value-based 2.cost-based 3.price-based 4.demand-based

Chapter 10- slide 13 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Factors to Consider When Setting Prices Customer Perceptions of Value

Chapter 10- slide 14 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Factors to Consider When Setting Prices Value-based pricingGood-value pricingValue-added pricing Customer Perceptions of Value

Chapter 10- slide 15 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Factors to Consider When Setting Prices Good-value pricing offers the right combination of quality and good service to fair price Existing brands are being redesigned to offer more quality for a given price or the same quality for less price Customer Perceptions of Value

Chapter 10- slide 16 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Factors to Consider When Setting Prices Everyday low pricing (EDLP) involves charging a constant everyday low price with few or no temporary price discounts High-low pricing involves charging higher prices on an everyday basis but running frequent promotions to lower prices temporarily on selected items Customer Perceptions of Value

Chapter 10- slide 17 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Factors to Consider When Setting Prices Value-added pricing attaches value-added features and services to differentiate offers, support higher prices, and build pricing power Pricing power is the ability to escape price competition and to justify higher prices and margins without losing market share Customer Perceptions of Value

Chapter 10- slide 18 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Factors to Consider When Setting Prices Cost-based pricing involves setting prices based on the costs for producing, distributing, and selling the product plus a fair rate of return for its effort and risk Company and Product Costs

Chapter 10- slide 19 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Factors to Consider When Setting Prices Cost-based pricing adds a standard markup to the cost of the product Company and Product Costs

Chapter 10- slide 20 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Factors to Consider When Setting Prices Fixed costs Variable costs Total costs Company and Product Costs Types of costs

Chapter 10- slide 21 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall ________costs do not vary with production or sales level. 1.Variable 2.Fixed (overhead) 3.Total 4.Value

Chapter 10- slide 22 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall ________costs do not vary with production or sales level. 1.Variable 2.Fixed (overhead) 3.Total 4.Value

Chapter 10- slide 23 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Factors to Consider When Setting Prices Fixed costs are the costs that do not vary with production or sales level Rent Heat Interest Executive salaries Company and Product Costs

Chapter 10- slide 24 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Factors to Consider When Setting Prices Variable costs are the costs that vary with the level of production Packaging Raw materials Company and Product Costs

Chapter 10- slide 25 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Factors to Consider When Setting Prices Total costs are the sum of the fixed and variable costs for any given level of production Average cost is the cost associated with a given level of output Company and Product Costs

Chapter 10- slide 26 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Fixed costs (overhead) plus variable costs equals __________costs. 1.semi-variable 2.equilibrium 3.total 4.semi-fixed

Chapter 10- slide 27 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Fixed costs (overhead) plus variable costs equals __________costs. 1.semi-variable 2.equilibrium 3.total 4.semi-fixed

Chapter 10- slide 28 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Factors to Consider When Setting Prices Costs at Different Levels of Production

Chapter 10- slide 29 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Factors to Consider When Setting Prices Experience or learning curve is when average cost falls as production increases because fixed costs are spread over more units Costs as a Function of Production Experience

Chapter 10- slide 30 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall The ________shows the drop in average costs with accumulated production experience. 1.learning curve 2.demand curve 3.cost curve 4.supply curve

Chapter 10- slide 31 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall The ________shows the drop in average costs with accumulated production experience. 1.learning curve 2.demand curve 3.cost curve 4.supply curve

Chapter 10- slide 32 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Factors to Consider When Setting Prices Cost-plus pricing adds a standard markup to the cost of the product Benefits –Sellers are certain about costs –Prices are similar in industry and price competition is minimized –Consumers feel it is fair Disadvantages –Ignores demand and competitor prices Cost-Plus Pricing

Chapter 10- slide 33 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall If a reseller buys a product from a manufacturer for $20 and wants to mark it up 50 percent, what will the new price be? 1.$30 2.$40 3.$25 4.None of the above

Chapter 10- slide 34 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall If a reseller buys a product from a manufacturer for $20 and wants to mark it up 50 percent, what will the new price be? 1.$30 2.$40 (markup price = unit price/[1-desired return on sales]) 3.$25 4.None of the above

Chapter 10- slide 35 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Factors to Consider When Setting Prices Break-even pricing is the price at which total costs are equal to total revenue and there is no profit Target profit pricing is the price at which the firm will break even or make the profit it’s seeking Break-Even Analysis and Target Profit Pricing

Chapter 10- slide 36 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall What is the break-even unit volume for a company with fixed costs of $50k, variable costs of $20, and a price of $30/unit? , , ,500

Chapter 10- slide 37 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall What is the break-even unit volume for a company with fixed costs of $50k, variable costs of $20, and a price of $30/unit? , ,000 (BE volume = FC/[price–VC]) 4.2,500

Chapter 10- slide 38 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall The addition of a standard markup to the cost of your product is the simplest pricing method referred to as __________pricing. 1.cost-plus 2.markup-plus 3.price-plus 4.elasticity

Chapter 10- slide 39 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall The addition of a standard markup to the cost of your product is the simplest pricing method referred to as __________pricing. 1.cost-plus 2.markup-plus 3.price-plus 4.elasticity

Chapter 10- slide 40 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Factors to Consider When Setting Prices Break-Even Analysis and Target Profit Pricing

Chapter 10- slide 41 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Considerations in Setting Price

Chapter 10- slide 42 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Factors to Consider When Setting Prices Customer perceptions of value set the upper limit for prices, and costs set the lower limit Companies must consider internal and external factors when setting prices Other Internal and External Considerations Affecting Price Decisions

Chapter 10- slide 43 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Factors to Consider When Setting Prices Target costing starts with an ideal selling price based on consumer value considerations and then targets costs that will ensure that the price is met Other Internal and External Considerations Affecting Price Decisions

Chapter 10- slide 44 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Factors to Consider When Setting Prices Organizational considerations include: Who should set the price Who can influence the prices Other Internal and External Considerations Affecting Price Decisions

Chapter 10- slide 45 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Factors to Consider When Setting Prices Before setting prices, the marketer must understand the relationship between price and demand for its products Other Internal and External Considerations Affecting Price Decisions The Market and Demand

Chapter 10- slide 46 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Which of the following is not an internal factor affecting pricing? 1.Marketing objectives 2.Marketing mix strategy 3.Costs 4.Competition

Chapter 10- slide 47 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Which of the following is not an internal factor affecting pricing? 1.Marketing objectives 2.Marketing mix strategy 3.Costs 4.Competition

Chapter 10- slide 48 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Factors to Consider When Setting Prices Pure competitionMonopolistic competitionOligopolistic competitionPure monopoly Other Internal and External Consideration Affecting Price Decisions Competition

Chapter 10- slide 49 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Which type of market consists of many buyers and sellers who trade over a range of prices rather than a single market price? 1.Pure competition 2.Monopolistic competition 3.Oligopolistic competition 4.Pure monopoly

Chapter 10- slide 50 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Which type of market consists of many buyers and sellers who trade over a range of prices rather than a single market price? 1.Pure competition 2.Monopolistic competition 3.Oligopolistic competition 4.Pure monopoly

Chapter 10- slide 51 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Which type of market has few sellers who are very sensitive to each other’s prices? 1.Pure competition 2.Monopolistic competition 3.Oligopolistic competition 4.Monopoly

Chapter 10- slide 52 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Which type of market has few sellers who are very sensitive to each other’s prices? 1.Pure competition 2.Monopolistic competition 3.Oligopolistic competition 4.Monopoly

Chapter 10- slide 53 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall According to the text, competition-based pricing is popular in __________markets. 1.pure competition 2.monopoly 3.monopolistic competition 4.oligopolistic competition

Chapter 10- slide 54 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall According to the text, competition-based pricing is popular in __________markets. 1.pure competition 2.monopoly 3.monopolistic competition 4.oligopolistic competition

Chapter 10- slide 55 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Factors to Consider When Setting Prices The demand curve shows the number of units the market will buy in a given period at different prices Normally, demand and price are inversely related Higher price = lower demand For prestige (luxury) goods, higher price can equal higher demand when consumers perceive higher prices as higher quality Other Internal and External Considerations Affecting Price Decisions

Chapter 10- slide 56 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Factors to Consider When Setting Prices Other Internal and External Considerations Affecting Price Decisions

Chapter 10- slide 57 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall A(n) ________curve shows the number of units the market will buy in a given time period at different prices that might be charged. 1.demand 2.elastic 3.experience 4.supply

Chapter 10- slide 58 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall A(n) ________curve shows the number of units the market will buy in a given time period at different prices that might be charged. 1.demand 2.elastic 3.experience 4.supply

Chapter 10- slide 59 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Factors to Consider When Setting Prices Price elasticity of demand illustrates the response of demand to a change in price Inelastic demand occurs when demand hardly changes when there is a small change in price Elastic demand occurs when demand changes greatly for a small change in price Price elasticity of demand = % change in quantity demand % change in price Other Internal and External Considerations Affecting Price Decisions

Chapter 10- slide 60 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall If demand changes greatly with a small change in price, we say the demand is _______. 1.inelastic 2.elastic 3.sensitive 4.reversed

Chapter 10- slide 61 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall If demand changes greatly with a small change in price, we say the demand is _______. 1.inelastic 2.elastic 3.sensitive 4.reversed

Chapter 10- slide 62 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Factors to Consider When Setting Prices Comparison of offering in terms of customer value Strength of competitors Competition pricing strategies Customer price sensitivity Other Internal and External Considerations Competitor's Strategies

Chapter 10- slide 63 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Factors to Consider When Setting Prices Economic conditions Reseller’s response to price GovernmentSocial concerns Other Internal and External Consideration Affecting Price Decisions

Chapter 10- slide 64 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Which of the following is(are) not an external consideration when setting prices? 1.Costs 2.Federal government 3.Social responsibility 4.Resellers

Chapter 10- slide 65 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Which of the following is(are) not an external consideration when setting prices? 1.Costs 2.Federal government 3.Social responsibility 4.Resellers

Chapter 10- slide 66 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright © 2010 Pearson Education, Inc. Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall