Ch 14 Setting Price

MARKETING Concepts as applied in the Ateneo MBA

Nathania Marija T. VilloncoAteneo Graduate School of Business

May 10, 2013

www.nathaniavillonco.blogspot.com

OutlineMaster 6 Steps in Setting Price

1. Select the price objective2. Determine demand3. Estimate costs4. Analyze competitor price mix5. Select pricing method6. Select final price

Step 1: Selecting the Pricing Objective

Survival

Concept 1

Maximum current profit, market share,

market skimming

Product-quality leadership

Survival among competitors 1st Example of Concept 1

• Jollibee prices objective to remain competitive

Maximum Current Profit2nd Example of Concept 1

• companies with weak competition set a high price that produces the most cash flow

Php 169.00 Php 180.00 Php 245.00

Maximum Market Share3rd Example of Concept 1

• Increase in market share so as to reap the benefit of large-scale production.

Market Share

Maximum Market Skimming4th Example of Concept 1

• company sets a higher price to capture those customers who are willing to pay more for a product.

Php 75.00 Php 25.00

Product Quality Leadership5th Example of Concept 1

• company aims to provide the best quality product in the market, and therefore charges more than its competitors.

Php 140.00 Php 98.00 Php 62.00

Step 2: Determining Demand

Concept 2

Price Elasticity of Demand

Estimating Demand Curves

• Price reduced compared to competitors to enter into markets or increase sales.

1st Example of Concept 2

Estimating Demand Curves

• relationship between the price of a certain commodity and the amount of it that consumers are willing and able to purchase at that given price.

2nd Example of Concept 2

Price Elasticity of Demand

• fast food is extremely price elastic, the slightest change can affect sales significantly

3rd Example of Concept 2

Step 3: Estimating Costs

Type of Costs

Concept 3

Activity-Based Cost Accounting

Accumulated Production

Target Costing

Type of Costs

• Fixed – rent, utilities

• Variable – inventory

Accumulated Production

• refers to the gain a company experiences in producing a product over a period of time. Workers learn shortcuts, materials flow more smoothly, and procurement costs fall

Activity Based Accounting

• Identifies the costs of producing items or services.

o Maintenance of the restaurant building.o Refrigeration of new materials.o Cardboard boxes for food order.o Store manager's salary.o Wages of the employees who clear and clean tables.o Depreciation on equipment.o Oil for the deep fat fryer (change every 4 hrs. )

3rd Example of Concept 3

Target Costing

• Final cost is determined after market analysis, and the product is designed or redesigned to meet it

4th Example of Concept 3

Step 4: Analyze competitor price mixConcept 4

Analyze competitor price mixExample of Concept 4

Step 5: Selecting a Pricing MethodConcept 5

• Markup• Target-return• Perceived-value• Value• Going-rate• Auction-type

Selecting a Pricing Method• Markup

• Target Return

• Perceived Value

Cost: US$ 0.08Price: US$ 1.08Markup: 1,250%

Investment$10,000

Expected sales volume1,000 units

Profit$10,000

sales volume1,000 units

Selecting a Pricing Method• Value

• Going rate

• Auction type

Php 28.00 Php 25.00

Step 6: Selecting the Final PriceConcept 6

Impact of other marketing activities

Company Pricing policies

Gain-and-risk sharing pricing

Impact of price on other parties

Selecting the Final Price• Impact of other marketing activities

• Company pricing policies“Think global, act local”

Selecting the Final Price

• Gain and risk sharing price

• Impact of price on other parties

1. Select the price objective2. Determine demand3. Estimate costs4. Analyze competitor price mix5. Select pricing method6. Select final price

SummaryMaster 6 Steps in Setting Price

REMEMBER This!

Mastering Marketing Concepts through Stories, Images and Diagrams

Nathania Marija T. VilloncoAteneo Graduata School of Business

May 10, 2013

1.) Geographical 2.) Discounts/Allowances3.) Promotional 4.) Differentiated

Price-adaptation Strategies

Imagine you need to buy grocery for the nearby supermarket

You have to buy the following…..

• Since Campbelle’s is imported from the U.S. price is affected geographically to cover shipping and other expenses

• Special offer for apples, provide larger packs with a discounted price

Php 25.00/each

Php 80.00/packPack of 4 pieces

• Seasonal promotions during holidays such as Halloween give additional discounts

• Different customer groups are charged different prices for the same product, students are often charged lower.

You have to buy the following…..

Price-adaptation Strategies

MARKETING Concepts as applied in the Ateneo MBA

Nathania Marija T. VilloncoAteneo Graduate School of Business

May 10, 2013

Ch 14 Setting Price

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