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Introduction to Pricing Concepts
Chapter Sixteen Introduction to Pricing Concepts 1
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Objectives Define & discuss price
Describe price interaction with the other “Ps” Analyze price’s role of in the economy Outline pricing strategy fundamentals Review relationship between price and organizational objectives Relate demand to price Overview demand & cost considerations on pricing Differentiate price elasticity, inelasticity, and cross-elasticity
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Key Pricing Concepts Value: product’s power to stimulate exchange
Barter: Money-less exchange Other terms: Rent Fee Donation Toll Honorarium Tuition
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Price in the Marketing Mix
Pays for all of a firm’s activities Most flexible element in marketing mix in free economy Major impact on store image List price = basic price quote Mark down = price reduction Consumer 4
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Price & Competition Price only competition: Long distance telephone
Internet service providers Commodities Nonprice competition: competition emphasizing marketing variables other than price Positioning Differentiation Branding
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Relationship between price and demand
Demand Curve Relationship between price and demand $2,500 $3,000 $3,500 $4,000 $4,500 $5,000 $5,500 Demand 8, , , , ,000
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Relationship between price and supply
Supply Curve Relationship between price and supply $2,500 $3,000 $3,500 $4,000 $4,500 $5,000 $5,500 Demand 8, , , , ,000 Supply
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Equilibrium Price Supply = Demand = $4,000 Demand Supply
$2,500 $3,000 $3,500 $4,000 $4,500 $5,000 $5,500 Demand 8, , , , ,000 Supply
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Pricing Strategy Set pricing objectives
Establish importance of price to target market Know demand Understand costs Determine strategy $ d s TM ₤ П 10
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Relating Pricing to Other Marketing Objectives
Company Actual prices Pricing strategies and policies Product objectives Distribution objectives Promotion objectives Price objectives
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Pricing Objectives: Income-Oriented
ROI Profit maximization Cash flow Survival
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Pricing Objectives Sales oriented Competition oriented Market share
Sales growth Competition oriented Avoid Meet Undercut Stabilize prices
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Pricing Objectives: Social Concerns
Behave ethically Maintain employment Public education “Give back to the community” 17
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Target Market Considerations
Who Price sensitivity Price perception Willingness to pay
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Relative Price Inelasticity
A relatively large increase in price results in only a small decrease in demand D P1 Q1 Q2 P2 Quantity
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Relative Price Elasticity
A relatively small decrease in price results in substantial increase in demand D P1 Q1 Q2 P2 Quantity
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Total Price Inelasticity
D Q1,Q2 P1 P2 Quantity
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Total Price Elasticity
D Quantity
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Cross-Elasticity Relationship in elasticities between products
Computer demand increase printer demand increase Beef prices increase, decreasing demand fish demand increase
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Know Your Costs Average cost Marginal cost Total cost
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Types of Costs Price Marginal cost Average cost Demand
Marginal revenue Quantity
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Intersection of Marginal Cost and Marginal Revenue
MR Cost greater than revenue Marginal cost = marginal revenue MC Cost and revenue Cost less than revenue Units produced and sold
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Review Define & discuss price
Describe price interaction with the other “Ps” Analyze price’s role of in the economy Outline pricing strategy fundamentals Review relationship between price and organizational objectives Relate demand to price Overview demand & cost considerations on pricing Differentiate price elasticity, inelasticity, and cross-elasticity
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