1. Price = Sacrifice BenefitsSacrifice NBC_bottled_water_vs_tap384K_Stream.wmv

2. 13-2 Copyright ©2011 The McGraw-Hill Companies. Grewal M 2e Price is a Signal Prices can be both too high and too low Price set too low may signal poor quality Price set too high might signal low value

3. 13-3 Copyright ©2011 The McGraw-Hill Companies. Grewal M 2e The 5 C’s of Pricing

4. Profit Oriented Sales Oriented Competitor Oriented Customer Oriented 1 st C: Company Objectives Exhibit 13.2: Company Objectives and Pricing Strategy Implications Company ObjectiveExamples of Pricing Strategy Implications Institute a companywide policy that all products must provide for at least an 18 percent profit margin to reach a particular profit goal for the firm Set prices very low to generate new sales and take sales away from competitors even if profits suffer To discourage more competitors from entering the market set prices very low Target a market segment of consumers who highly value a particular product benefit and set prices relatively high (referred to as premium pricing)

5. 13-5 Copyright ©2011 The McGraw-Hill Companies. Grewal M 2e Pricing Strategies Penetration Pricing Set low initially Build market share Keep out competition Price Skimming Set high initially New and innovative products – innovator segment Cross Price Elasticity Percentage change in the quantity of Product A demanded compared with the percentage change in price in Product B Everyday Low Prices (EDLP) Saves search costs High/Low Pricing Thrill of chase for lowest price Clip 14

6. 13-6 Copyright ©2011 The McGraw-Hill Companies. Grewal M 2e 1. Company Objectives: Profit Orientation Profit Orientation Target return pricing Target profit pricing Maximizing profits

7. 13-7 Copyright ©2011 The McGraw-Hill Companies. Grewal M 2e 1. Company Objectives: Sales Orientation Focus on increasing sales More concerned with overall market share Does not always imply low setting low prices

8. 13-8 Copyright ©2011 The McGraw-Hill Companies. Grewal M 2e 1. Company Objectives: Competitor Orientation Competitive parity Status quo pricing Value is not part of this pricing strategy

9. 13-9 Copyright ©2011 The McGraw-Hill Companies. Grewal M 2e = Focus on customer expectations 1. Company Objectives: Customer Orientation http://www.automotive.com/gas-prices/32/oklahoma/cleveland / Reference Price comparison facilitates evaluation

10. 13-10 Copyright ©2011 The McGraw-Hill Companies. Grewal M 2e 2nd C: Customers

11. 13-11 Copyright ©2011 The McGraw-Hill Companies. Grewal M 2e Demand Curves Not all are downward sloping Prestigious products or services have upward sloping curves

12. Price Elasticity of Demand Measures how changes in a price affect the quantity of the product demanded The ratio of the percentage change in quantity demanded to the percentage change in price Price Elasticity of Demand =% Change in Quantity Demanded % Change in Price Elastic – Price Sensitive Inelastic – Price Insensitive

13. 3rd C: Costs Variable Costs – Vary with production volume Fixed Costs – Unaffected by production volume Total Cost – Sum of variable and fixed costs

14. Break Even Analysis and Decision Making

15. 4 th C: Competition Less Price CompetitionMore Price Competition Fewer Firms Many Firms Monopoly One firm controls the market Oligopoly A handful of firms control the market Monopolistic Competition Many firms selling differentiated products at different prices Pure Competition Many firms selling commodities for the same price

16. 5th C: Channel Members Manufacturers, wholesalers and retailers can have different perspectives on pricing strategies Manufactures must protect against gray market transactions