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Pricing Considerations and Strategies Factors Affecting Pricing Decisions 9-2 Internal Factors Affecting Pricing Decisions Marketing Objectives: Company must decide on its strategy for the product. General Objectives: Survival, current profit maximization, market share leadership, and product quality leadership. 9-3 Internal Factors Affecting Pricing Decisions: Marketing Mix Strategy Product Design Nonprice Positions Price
Promotion Distribution 9-4 Types of Cost Factors that Affect Pricing Decisions
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 Total Costs Sum of the Fixed and Variable Costs for Any Given Level of Production
9-5 External Factors Affecting Pricing Decisions
Market and Demand Competitors' Costs, Prices, and Offers Other External Factors
Economic Conditions Reseller Reactions Government Actions Social Concerns 9-6 Pricing in Different Types of Markets
Pure Competition: Many buyers and sellers where each has little effect on the going market price Monopolistic Competition: Many buyers and sellers who trade over a range of prices Oligopolistic Competition: Few sellers who are sensitive to each other's pricing/marketing strategies Pure Monopoly: Market consists of a single seller
9-7 Major Considerations in Setting Price 9-8 Cost-Based Pricing
Certainty About Costs Pricing is Simplified Price Competition Is Minimized CostPlus Ethical Pricing is an Approach That Adds a Standard Markup to the Attitudes of Cost of the Others Product
Unexpected Situational Factors Simplest Pricing Method Fairer to Buyers & Sellers Ignores Current Demand & Competition
9-9 Cost-Based Versus ValueBased Pricing (Fig. 10-5) 9-10 Competition-Based Pricing
Methods for Setting Prices ? Company Sets Prices Based on What They Think Competitors ? Will Charge Company Sets Prices Based on What Competitors Are Charging GoingRate SealedBid 9-11 New-Product Pricing Strategies When to use: MarketSkimming Set a high price for a new product to "skim" revenues layer by layer from the market. but more profitable sales. Company makes fewer, Product's quality and image must support its higher price. Costs of smaller volume cannot be so high they cancel the advantage of charging more. Competitors should not be able to enter market easily and undercut the high price.
9-12 New-Product Pricing Strategies When to use: Market Penetration Set a low initial price in order to "penetrate" the market quickly and deeply. number of buyers quickly and win a large market share. Can attract a large Market must be highly price sensitive so a low price produces more market growth. Production and distribution costs must fall as sales volume increases. Must keep out competition and maintain low price or effects are only temporary. 9-13 Product Mix-Pricing Strategies:
Product Line Pricing Involves setting price steps between various products in a product line based on: Cost differences between products, Customer evaluations of different features, and Competitors' prices.
9-14 Product Mix-Pricing Strategies OptionalProduct Pricing optional or accessory products sold with the main product. i.e camera bag. Pricing products that must be used with the main product. i.e. film.
9-15 CaptiveProduct Pricing Strategies
ByProduct Pricing: Setting a price for byproducts in order to make the main product's price more competitive (e.g., sawdust and Zoo Doo) Product Bundle Pricing: Combining several products and offering the bundle at a reduced price (e.g., computer with software and Internet access).
9-16 Product Bundle Pricing CityPASS bundles tickets to many attractions at a low combined price.
9-17 Discounts and Allowances
Cash Quantity Functional Seasonal
TradeIn Promotional Segmented Pricing S e llin g P r o d u c t s A t 2 o r M o r e P r ic e s E v e n T h o u g h T h e r e is N o D iffe r e n c e in C o s t
C u s to m e r - S e g m e n t P ro d u c t - F o rm L o c a t io n P r ic in g T im e P r ic in g 9-19 Psychological Pricing Considers the psychology of prices and not simply the economics. Consumers usually perceive higherpriced products as having higher quality. Consumers use price less when they can judge quality of a product. 9-20 Promotional Pricing
Temporarily pricing products below list price and sometimes even below cost to create buying excitement and urgency. Approaches:
Loss Leaders SpecialEvent Pricing Cash Rebates Discounts
9-21 LowInterest Financing Longer Warranties Free Maintenance Geographical Pricing FOBorigin pricing Uniformdelivered pricing Zone pricing Basingpoint pricing Freightabsorption pricing 9-22 International Pricing Price depends on many factors, including: Economic conditions Competitive situations Laws and regulations Development of the wholesaling and retailing system Costs 9-23 Initiating Price Changes
Excess Capacity Falling Market Share Dominate Market Through Lower Costs Price Increases
Cost Inflation Overdemand: Cannot Supply All Customers' Needs 9-24 ...
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This note was uploaded on 09/11/2008 for the course BNAD 303 taught by Professor Hardesty during the Spring '07 term at Arizona.
- Spring '07