1. BUILDING THE PRICE FOUNDATION

2. NATURE AND IMPORTANCE OF PRICE
What is a Price?
Barter

3. The price of four different purchases

4. Lamborghini
What will this car cost?

5. NATURE AND IMPORTANCE OF PRICE
Price as an Indicator of Value
Value-pricing
Price in the Marketing Mix
Profit Equation

6. STEPS IN THE SETTING OF PRICE
After studying this chapter, you should be able to:
• Explain the different constraints that limit the flexibility in setting price
• Identify and discuss the various pricing objectives a marketer can choose, to guide the pricing decision
• Explain the role of supply and demand in price determination
• Discuss the meaning of elasticity and explain the different types
• Discuss the factors affecting price sensitivity
• Explain how price sensitivity can be measured

7. STEPS IN THE SETTING OF PRICE
After studying this chapter, you should be able to:
• Identify and explain the different costs that affect pricing
• Explain the concepts of total and marginal revenue • Explain marginal analysis and be able to apply the formulas
• Discuss break-even analysis and be able to calculate break-even points

8. Steps in setting price

9. STEP 1: IDENTIFY PRICING CONSTRAINTS AND OBJECTIVES
Identifying Pricing Constraints
These could be internal and external factors that limit the choice as to range of prices to be charged.
Obvious ones are demand for the product and nature of competition.

10. STEP 1: IDENTIFY PRICING CONSTRAINTS AND OBJECTIVES
Identifying Pricing Constraints
Demand for the Product Class, Product, and Brand – number of potential buyers affect price marketer can charge
Critical to understand and estimate dynamics of demand for a Product class: (e.g. shoes)
Product: (e.g. running shoes)
Brand: (e.g. Nike)
Nature of product itself: whether it’s a luxury or necessity - will also affect price.

11. STEP 1: IDENTIFY PRICING CONSTRAINTS AND OBJECTIVES
Identifying Pricing Constraints
Newness of the Product: Stage in the Product Life Cycle – A higher price can be charged for a relatively new product, especially if is innovative and not easily copied.
Early stages of Product Life Cycle.
Kreepy Krauly was the first automatic pool cleaner when it was introduced, there was no direct competitors.
Could charge a premium price
Competition came in (Baracuda) less flexibility in terms of setting price.

12. STEP 1: IDENTIFY PRICING CONSTRAINTS AND OBJECTIVES
Identifying Pricing Constraints
Single Product versus a Product Line - marketer has only one product to price, this leads to greater flexibility than if there is a line of products. Why?
Marketer has to keep in mind the differences in terms of features and value for each product within the line,
and must try to set pricing for the various products in a consistent manner.
Puts more contraints on pricing, why?

13. STEP 1: IDENTIFY PRICING CONSTRAINTS AND OBJECTIVES
Identifying Pricing Constraints
Cost of Producing and Marketing the Product – Marketing concept stresses profitability over the long term.
This implies that the price set should cover the costs of producing and marketing the product, in order to make a profit
At the very least, the price set should cover the costs - the firm makes no profit if the price drops to a level below cost.

14. STEP 1: IDENTIFY PRICING CONSTRAINTS AND OBJECTIVES
Identifying Pricing Constraints
Cost of changing prices and time period to which they apply. - Companies have to carefully consider the time period for which new prices will apply.
Most companies review and adapt the prices for their major prod­ucts at least once a year. Why?
The number of customers that must be informed of any price change will affect the length of time for which a price can be set. How?

15. STEP 1: IDENTIFY PRICING CONSTRAINTS AND OBJECTIVES
Identifying Pricing Constraints
The number of customers that must be informed of any price change will affect the length of time for which a price can be set. How?
South African state-owned weapons manufacturer, Denel – supplies South Africa, Namibia and other countries.

16. STEP 1: IDENTIFY PRICING CONSTRAINTS AND OBJECTIVES
Identifying Pricing Constraints
The type of market in which the firm competes also constraints price.
Types of Competitive Markets
Pure monopoly
Oligopoly
Monopolistic competition
Pure competition

17. Pricing, product, and advertising strategies available to firms in four types of competitive markets

18. STEP 1: IDENTIFY PRICING CONSTRAINTS AND OBJECTIVES
You need to know how to discuss the Relationship between: - Costs, Price (Competitor) and Value
from a company’s perspective.
Factors other, than those discussed that illustrate the complexity of setting price because of a number of constraints.
e.g.) Organisational and marketing objectives, channel member expectations, laws, exchange rate, inflation, economic growth etc.

19. STEP 1: IDENTIFY PRICING CONSTRAINTS AND OBJECTIVES
Types of Pricing Objectives
Pricing objectives are used to designate the role of price in the organisation's mar­keting and strategic plans.
They help to indicate what the organisation wants to
achieve through its pricing.
Many categories of pricing objectives exist.
Let us look at the major types of marketing objectives that a marketer can consider.

20. STEP 1: IDENTIFY PRICING CONSTRAINTS AND OBJECTIVES
Types of Pricing Objectives
Survival
Profit
Sales
Competition
Product Quality Leadership
Non-profit

21. STEP 2: ESTIMATE DEMAND AND SERVICE
Fundamentals of Estimating Demand
The Demand Curve

22. Illustrative demand curves for Newsweek magazine

23. STEP 2: ESTIMATE DEMAND AND SERVICE
The Demand Curve
Demand factors
Movement Along versus Shift of a Demand Curve

24. STEP 2: ESTIMATE DEMAND AND SERVICE
Fundamentals of Estimating Revenue
Total revenue
Average revenue
Marginal revenue

25. Fundamental revenue concepts

26. How a downward-sloping demand curve affects total, average, and marginal revenue

27. STEP 2: ESTIMATE DEMAND AND SERVICE
Fundamentals of Estimating Revenue
Price Elasticity of Demand
Price Elasticity for Brands and Product Classes

28. STEP 3: DETERMINE COST, VOLUME, AND PROFIT RELATIONSHIPS
The Importance of Controlling Costs
Total cost
Fixed cost
Variable cost
Marginal cost

29. Fundamental cost concepts

30. STEP 3: DETERMINE COST, VOLUME, AND PROFIT RELATIONSHIPS
Marginal Analysis and Profit Maximization

31. Profit maximization pricing

32. STEP 3: DETERMINE COST, VOLUME, AND PROFIT RELATIONSHIPS
Break-Even Analysis
Break-even point
Break-even chart
Calculating a Break-Even Point

33. Calculating a break-even point

34. Break-even analysis chart