1. Principles of Marketing
Lecture-24

2. Summary of Lecture-23

5. Product

6. Today’s Topics

8. What is Price?

9. Price Has Many Names Rent Fee Rate Commission Tuition Fare Toll
Premium
Bribe
Salary
Wage
Interest
Tax

10. Definition

11. 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.

12. Price is the sum of all the values that consumers exchange for the benefits of having or using the product or service.
Price is the only element in the marketing mix that produces revenues; all others represent costs.

13. Dynamic Pricing
Charging different prices depending on individual customers and situations.

14. Factors Affecting Price Decisions

15. Internal Factors Pricing Decisions External Factors
Factors to Consider When Setting Prices
This CTR corresponds to Figure 10-1 on p. 303 and relates to the discussion on pp
Pricing
Decisions
Positioning Objectives
Target Market
External Factors

16. External Factors Internal Factors Nature of the market and demand
Competition
Other environmental
factors (economy, resellers, government)
Internal Factors
Marketing Objectives
Marketing Mix Strategy
Costs
Organizational
considerations
Pricing
Decisions

17. Internal Factors Affecting Pricing Decisions

18. Costs Marketing Objectives Marketing-Mix Strategy Organizational
Considerations

19. Marketing Objectives that Affect Pricing Decisions

20. Marketing Objectives Survival Current Profit Maximization
Internal Factors Affecting Pricing Decisions
This CTR relates to the discussion on pp
Survival
Low Prices to Cover Variable Costs and
Some Fixed Costs to Stay in Business.
Current Profit Maximization
Choose the Price that Produces the Maximum Current Profit, Cash Flow or ROI.
Marketing
Objectives
Marketing Objectives
The overall marketing objectives that influence price:
Survival. This can be the primary factor in setting price especially in marginal businesses or industries. Price is used to stay in business in hopes of making profits when conditions improve.
Current Profit Maximization. This objective means the company is emphasizing short term results over long-run performance.
Market-Share Leadership. This factor affects price when the company seeks the dominant market share. Low prices increase demand so that later volume creates profit.
Product-Quality Leadership. This tends to push prices high. This pricing strategy may be linked to niching strategy in other discussions.
Market Share Leadership
Low as Possible Prices to Become
the Market Share Leader.
Product Quality Leadership
High Prices to Cover Higher
Performance Quality

21. Marketing Mix Variables that Affect Pricing Decisions

22. Product Design and Quality Marketing-Mix Strategy Distribution
Internal Factors Affecting Pricing Decisions
This CTR relates to the discussion on pp
Product Design
and Quality
Marketing-Mix
Strategy
Non-Price
Factors
Distribution
Marketing Mix Strategy
Price must be considered in light of its role in support of the overall marketing mix. Price is one kind of information the consumer receives about the product. Price should consistently support the overall positioning strategy targeted by the marketing mix.
Promotion

23. Pricing must be carefully coordinated with the other marketing mix elements
Target costing is often used to support product positioning strategies based on price

24. Costs

25. Set the floor for the price
Cover total costs - fixed plus variable costs
Fixed costs
do not vary with production volume
Variable costs
vary directly with production volume

26. Types of Cost Factors that Affect Pricing Decisions

27. Sum of the Fixed and Variable Costs for a Given
Total Costs
Sum of the Fixed and Variable Costs for a Given
Level of Production
Internal Factors Affecting Pricing Decisions
This CTR relates to the discussion on pp
Fixed Costs
(Overhead)
Costs that don’t
vary with sales or
production levels.
Executive Salaries
Rent
Variable Costs
Costs that do vary
directly with the
level of production.
Raw materials
Costs
Costs set the pricing floor that the company can charge for its product. Types of costs include:
Fixed Costs (or overhead) are costs that do not vary much with production or sales levels.
Variable Costs vary directly with the level of production.
Total Costs are the sum of the fixed and variable costs for any given level of production.

28. Fixed Costs Rent Depreciation Manager’s salaries Property taxes
Insurance

29. Fixed Costs Variable Costs Rent Depreciation Raw materials
Component parts
Hourly wages
Packaging & freight
Sales commissions
Manager’s salaries
Property taxes
Insurance

30. How costs vary at different production levels will influence price setting

31. Organizational considerations

32. Who sets the price?
Small companies: CEO or top management
Large companies: Divisional or product line managers
Price negotiation is common in industrial settings
Some industries have pricing departments

33. External factors affecting Pricing decisions

34. Other External Factors
Market and
Demand
Competitors’ Costs,
Prices, and Offers
Other External Factors
Economic Conditions
Reseller Needs
Government Actions
Social Concerns

35. The Market and Demand factors that affect Pricing decisions

36. Different Types of Markets
Pure Competition
Many Buyers and Sellers Who
Have Little Affect on the Price.
Monopolistic Competition
Many Buyers and Sellers Trading
Over a Range of Prices.
Different Types of Markets
The Market and Demand
This CTR relates to the discussion on pp
The Market and Demand
Types of Markets. Each presents distinct pricing challenges:
Pure Competition - is characterized by many buyers and sellers to that no one agent affects pricing. Going rate pricing is the rule.
Monopolistic Competition - consists of many buyers and sellers trading over a range of prices. Products can be differentiated in quality, features, or styles.
Oligopolistic Competition - consists of few sellers each sensitive to the other's pricing and marketing strategies. Barriers to entry prohibit new sellers from entering the market.
Pure Monopoly. This market consists of a single seller. The seller may by a government, private regulated monopoly, or unregulated monopoly. Pricing may be linked to other than cost or profit factors, including fear of competition entering or regulation.
Consumer Perceptions of Price and Value. Buyers ultimately decide prices. Marketers must combine technical expertise with creative judgment and an awareness of buyers’ motivations.
Oligopolistic Competition
Few Sellers Each Sensitive to Other’s
Pricing/ Marketing Strategies
Pure Monopoly
Single Seller

37. Consumer Perception of Price and Value
Pricing decision must be buyer/ consumer oriented

38. Price-Demand Relationships

39. The Demand Determinant of Price
Quantity

40. Demand Curves

42. Price Elasticity of Demand
How quantity demanded responds to price changes

43. Price Quantity Demanded per Period A. Inelastic Demand -
Demand Hardly Changes With
a Small Change in Price. P2 P1 Q1 Q2
P’2
P’1
B. Elastic Demand -
Demand Changes Greatly With
Demand Curves
This CTR corresponds to Figure 10-4 on p. 311 and relates to the discussion on pp
Price Demand Relationship
A demand curve show the number of units the market will buy in a given time period at various prices. The price elasticity of demand illustrates how responsive demand will be to a change in price. Two concepts are important here:
Inelastic Demand. If demand hardly changes with a small change in price, demand is inelastic.
Elastic Demand. If a small change in prices changes demand greatly, demand is elastic.
Discussion Note: The ethical issues involved in pricing products characterized by inelastic demand are often complicated and controversial. For example, many new drugs are extremely expensive to develop and market but may be the only treatment available for an illness. In other cases, relatively cheap drugs are sold for high prices under the same “must have” conditions.
Also, the concept of induced demand, which characterizes both the medical and legal professions is a controversial issue. Induced demand refers to the fact that in these industries, the provider also determines the level of demand or product to be used. In both cases, those providers also set the price of their services. To make matters worse, consumers do not have price comparison information. For example, the WSJ reported heart by-pass operations for two hospitals within four miles of each other varying on price by over $20,000. And even if consumers have knowledge, in critical care situations they may not have time to exercise choice.

44. Elastic demand
price changes affect demand
total revenue falls when price increases
total revenue increases when price falls
Inelastic demand
price changes do not affect demand
total revenue increases when price increases
total revenue falls when price falls

45. Competitors’ costs, prices, and offers

46. Consider competitors’ costs, prices, and possible reactions when developing a pricing strategy
Pricing strategy influences the nature of competition
Low-price low-margin strategies inhibit competition
High-price high-margin strategies attract competition
Benchmarking costs against the competition is recommended

47. Other environmental elements

48. Economic conditions
Affect production costs
Affect buyer perceptions of price and value
Reseller reactions to prices must be considered
Government may restrict or limit pricing options
Social considerations may be taken into account

49. Enough for today. . .

50. Summary

52. What is Price?

53. Price Has Many Names Rent Fee Rate Commission Tuition Fare Toll
Premium
Bribe
Salary
Wage
Interest
Tax

54. 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.

55. Factors Affecting Price Decisions

56. Internal Factors Pricing Decisions External Factors
Factors to Consider When Setting Prices
This CTR corresponds to Figure 10-1 on p. 303 and relates to the discussion on pp
Pricing
Decisions
Positioning Objectives
Target Market
External Factors

57. Next….

58. Pricing (cont..)

59. Principles of Marketing
Lecture-24