DHD2009 MKT243 Fundamental Of Marketing

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Fundamental Of Fundamental Of MarketingMarketingMKT243MKT243

Chapter 11Chapter 11

Pricing ConceptPricing Concept

DHD2009 MKT243 Fundamental Of Marketing

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Slide OutlineSlide Outline• Pricing Objective• Demand determination of price• Cost determination of price• Other determination of price

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Price is the amount of money charged for a product or service. It is the sum of all the values that consumers give up in order to gain the benefits of having or using a product or service.

Price is that which is given up in an exchange to acquire a product and service

Price is the only element in the marketing mix that produces revenue; all other elements represent costs

What Is a Price?What Is a Price?

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The Importance of PriceThe Importance of Price

Revenue = Unit Price Number of units sold

Revenue pays for every activity. What’s left over is Profit.

High Price

Low Price

Price=

Perceived Value

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Profit-Oriented Pricing Profit-Oriented Pricing ObjectivesObjectives

Profit-Oriented Pricing ObjectivesProfit-Oriented Pricing ObjectivesProfit-Oriented Pricing ObjectivesProfit-Oriented Pricing Objectives

ProfitMaximization

ProfitMaximization

SatisfactoryProfits

SatisfactoryProfits

Target Return on

Investment

Target Return on

Investment

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Pricing ObjectivesPricing Objectives1. Profit –Oriented Pricing Objectivei. Profit Maximization

-Setting prices so that Total Revenue is larger as possible-As long as the revenue exceed the cost

ii. Satisfactory profits-Setting prices so that company gets a reasonable level of profits or consistent profits-Level of profit must be consistent with the level of the risk that the organization have to face

iii. Target return on Investment/ROI-The higher the ROI, the better off the firms is-High risk, High return (finance theory)

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Sales-Oriented Pricing Sales-Oriented Pricing ObjectivesObjectives

MarketShare

MarketShare

SalesMaximization

SalesMaximization

Sales-Oriented Pricing ObjectivesSales-Oriented Pricing ObjectivesSales-Oriented Pricing ObjectivesSales-Oriented Pricing Objectives

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Pricing ObjectivesPricing Objectives2. Sales-Oriented Pricing Objectivei. Market share-is a company’s sales as a

percentage of total sales for the industry

ii. Sales Maximization-Maximizing sales, ignores profits, competition and marketing environment as long as sales are rising

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Status Quo Pricing Status Quo Pricing ObjectivesObjectives

Maintainexistingprices

Maintainexistingprices

Meetcompetition’s

prices

Meetcompetition’s

prices

Status Quo Pricing ObjectivesStatus Quo Pricing ObjectivesStatus Quo Pricing ObjectivesStatus Quo Pricing Objectives

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Pricing ObjectivesPricing Objectives3. Status-Quo Pricing Objectivei. A pricing objective that maintains existing

prices or meets competitor’s priceii. Keep monitoring competitor’s prices, compare

prices and make adjustmentsiii. Based on the competitor prices

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Demand and SupplyDemand and Supply

DemandDemand

SupplySupply

The quantity of a product that will be sold in the market at various

prices for a specified period.

The quantity of a product that will be sold in the market at various

prices for a specified period.

The quantity of a productthat will be offered to the marketby a supplier at various prices

for a specific period.

The quantity of a productthat will be offered to the marketby a supplier at various prices

for a specific period.

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Elasticity of DemandElasticity of Demand

Elastic Elastic DemandDemand Elastic Elastic

DemandDemand

Consumers buy more or lessof a product when the price changes

InelasticInelasticDemandDemand

InelasticInelasticDemandDemand

An increase or decrease in price will not significantly affect demand

UnitaryUnitaryElasticityElasticityUnitaryUnitary

ElasticityElasticity

An increase in sales exactly offsets a decrease in prices, and revenue is unchanged

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Factors that Affect Elasticity Factors that Affect Elasticity of Demandof Demand

Availability of substitutesAvailability of substitutes

Price relative topurchasing power

Price relative topurchasing power

Product durabilityProduct durability

A product’s other usesA product’s other uses

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The Cost Determinant of The Cost Determinant of PricePrice

Types of CostsTypes of CostsTypes of CostsTypes of Costs

VariableVariableCostsCosts

VariableVariableCostsCosts Fixed CostsFixed CostsFixed CostsFixed Costs

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The Cost Determinant of The Cost Determinant of PricePrice

Target-ReturnPricing

Target-ReturnPricing

Break-EvenPricing

Break-EvenPricing

Profit Maximization Pricing

Profit Maximization Pricing

KeystoningKeystoning

Markup pricingMarkup pricing

MethodsMethodsUsed toUsed to

Set PricesSet Prices

MethodsMethodsUsed toUsed to

Set PricesSet Prices

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Break-Even PricingBreak-Even Pricing

QuantityQuantity

Pri

ceP

rice

2,0002,000

00 1,0001,000 2,0002,000 3,0003,000 4,0004,000 5,0005,000 6,0006,000

4,0004,000

Fixed costsFixed costs

LossLoss

ProfitProfitTotal RevenueTotal Revenue

Total CostsTotal CostsBreak-even pointBreak-even point

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Other Determinants of PriceOther Determinants of Price

Perceived QualityPerceived Quality

Promotion StrategyPromotion Strategy

Distribution StrategyDistribution Strategy

CompetitionCompetition

Stages of theProduct Life Cycle

Stages of theProduct Life Cycle