1. Ass. Prof. Dr. Özgür KÖKALAN İstanbul Sabahattin Zaim University

2. Chapter Objectives 1. Define price and list the elements affecting pricing strategy 2. Describe the types of pricing 5-2

3. PRICE IN THE MARKETING MIX Price: exchange value of a good or service Price: exchange value of a good or service © PhotoDisc

4. Developing Pricing Strategies Seven Factors Affecting Pricing Decisions Marketing Objectives Government Regulations Consumer Perceptions Manufacturing and Selling Costs Competition Consumer Demand Wholesalers and retailers needs

5. Figure 14.11 Alternative Pricing Objectives

6. Profitability Objectives Perhaps the most commonly used objective in firms’ pricing strategies Perhaps the most commonly used objective in firms’ pricing strategies Some firms try to maximize profits by reducing costs rather than through price changes Some firms try to maximize profits by reducing costs rather than through price changes © PhotoDisc

7. Volume Objectives Bases pricing decisions on market share Bases pricing decisions on market share Market share: the percentage of a market controlled by a certain company or product Market share: the percentage of a market controlled by a certain company or product © PhotoDisc

8. Pricing to Meet Competition Third set of pricing objectives Third set of pricing objectives Seeks to meet competitors’ prices Seeks to meet competitors’ prices © PhotoDisc

9. Prestige Objectives Prestige pricing encompasses the effect of price on prestige Prestige pricing encompasses the effect of price on prestige Prestige pricing establishes a relatively high price to develop and maintain an image of quality and exclusiveness Prestige pricing establishes a relatively high price to develop and maintain an image of quality and exclusiveness Interesting WWW Site 

10. HOW PRICES ARE DETERMINED Determined in two basic ways: Determined in two basic ways: By applying the theoretical concepts of supply and demand By applying the theoretical concepts of supply and demand By completing cost analyses By completing cost analyses © PhotoDisc

11. Price Determination in Practice Cost-based pricing formulas: formulas calculate base-cost figures per unit and then add markups to cover overhead costs and generate profits Cost-based pricing formulas: formulas calculate base-cost figures per unit and then add markups to cover overhead costs and generate profits Simpler and easier to use than economic theory-based pricing Simpler and easier to use than economic theory-based pricing © PhotoDisc

12. Breakeven Analysis Breakeven analysis: pricing technique that determines the sales volume that a firm must achieve at a specified price in order to generate enough revenue to cover its total cost Breakeven analysis: pricing technique that determines the sales volume that a firm must achieve at a specified price in order to generate enough revenue to cover its total cost

13. Finding the Breakeven Point Breakeven point Total Fixed Cost (in units) Contribution to Fixed Costs Per Unit Breakeven point Total Fixed Cost (in dollars) 1 – Variable Cost Per Unit/Price = =

14. Skimming pricing strategy: sets a high price relative to the prices of competing products Often works for introduction of a distinctive good or service with little or no real competition Skimming Alternative Pricing Strategies © PhotoDisc

15. Penetration pricing strategy: sets a low price as a major marketing weapon Assumes that a below- market price will attract buyers and move a brand from an unknown newcomer to at least a brand recognition or even a brand preference stage Skimming Penetration Alternative Pricing Strategies © PhotoDisc

16. Competitive Competitive pricing strategy: product priced at the general level of competing offerings Attempts to reduce the emphasis on price and concentrates marketing efforts on product, distribution, and promotion Skimming Penetration Alternative Pricing Strategies © PhotoDisc

17. CONSUMER PERCEPTIONS OF PRICES Psychological Pricing Psychological Pricing Odd pricing (charging $39.95 or $19.98 instead of $40 or 20) Odd pricing (charging $39.95 or $19.98 instead of $40 or 20) Commonly-used retail practice, as many retailers believe that consumer favor uneven amounts Commonly-used retail practice, as many retailers believe that consumer favor uneven amounts © PhotoDisc