Chapter 16 - C.docx - Chapter 16 u2013 Pricing Concepts...

Chapter 16 – Pricing Concepts and Strategies
Pricing Objectives and the Marketing Mix
 A firm’s prices and the resulting purchases by its customers determine the company’s
revenue, influencing the profits it earns
 A firm might, set a major overall goal of becoming the dominant producer in its domestic
market
 It might then develop a marketing objective of achieving maximum sales penetration in
each region, followed by a related pricing objective of setting prices at levels that
maximize sales
 Product decisions, promotional plans, and distribution choices all affect the price of a
good or service
 Basic so-called fighting brands are intended to capture market share from higher-priced,
options-leaden competitors by offering relatively low prices to entice customers to give
up some options in return for a cost savings
 Pricing objectives vary from firm to firm, and they can be classified into four major
groups:
o Profitability objectives
o Volume objectives
o Meeting competition objectives
o Prestige objectives
Profitability Objectives
 Marketers at for-profit firms must set prices with profits in mind
 Russian proverbs “There are two fools in every market: one asks to little, one asks too
much”
 For consumers to pay prices that are either above or below what they consider to be the
going rate, they must be convinced they are receiving fair value for their money
 Economic theory is based on two major assumptions
 First, that firms will behave rationally
 Second, this rational behaviour will result in an effort to maximize gains and minimize
losses
 The talents lies in a marketer’s ability to strike a balance between desired profits and the
customer’s perception of a product’s value
 Marketers should evaluate and adjust prices continually to accommodate changes in the
environment
 Technological environment, forces internet marketers to respond quickly to competitors’
pricing strategies
 Intense price competition, often results when rivals battle for leadership positions in
new product categories
 Profits are a function of revenue and expenses:
o Profits = Revenue – Expense
 Revenue is determined by the product’s selling price and number of units sold:
o Total Revenue = Price * Quantity Sold
 A profit maximizing price rises to the point at which further increases will cause
disproportionate decreases in the number of units sold
 Marginal Analysis – method of analyzing the relationship among costs, sales price, and
increased sales volume

 Profit Maximization – point at which the additional revenue gained by increasing the
price of a product equals the increase in total costs
 Target Return Objectives – short run or long run pricing objectives of achieving a
specified return or either sales or investment
Volume Objectives
 They set a minimum acceptable profit level and then seek to maximize sales in the belief
that the increased sales are more important in the long run competitive picture than
immediate high profits
