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Pricing Products:

Pricing Considerationsand Approaches

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Factors to Cons ider When Sett ing

Prices

Internal Factors

PricingDecisions

External Factors

Target

MarketPositioningObjectives

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In ternal Facto rs A ffect ing Pric ing

Decis ions

MarketingObjectives

Marketing-MixStrategy

Costs

OrganizationalConsiderations

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Marketing Mix Variab les that A ffect

Pric ing Decis ion s

Marketing-MixStrategy

Product Designand Quality

Distribution

Promotion

Non-PriceFactors

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Types of Cost Factors that

A f fect Pr ic ing Decis ions

Total CostsSum of the Fixed and Variable Costs for a Given

Level of Production

Variable Costs

Costs that do vary

directly with thelevel of production.

Raw materials

Fixed Costs(Overhead)

Costs that dontvary with sales orproduction levels.

Executive SalariesRent

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Costs Considerat ions

Costp

erunit

12

3 4SRAC

LRAC

Quantity Produced per Day

1,0

00

2,0

00

3,0

00

4,0

00

Cost Per Unit at Different Levels of Production Per Period

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The Market and Demand Facto rs that

A f fect Pr ic ing Decis ion s

Pure CompetitionMany Buyers and Sellers WhoHave Little Affect on the Price.

Monopolistic CompetitionMany Buyers and Sellers Trading

Over a Range of Prices.

Oligopolistic CompetitionFew Sellers Each Sensitive to Others

Pricing/ Marketing Strategies

Pure MonopolySingle Seller

Different Types of Markets

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Demand Curves

Price

Quantity Demanded per Period

A. Inelastic Demand -Demand Hardly Changes Witha Small Change in Price.

P2

P1

Q1Q2

Pri

ce

Quantity Demanded per Period

P2

P1

Q1Q2

B. Elastic Demand -Demand Changes Greatly Witha Small Change in Price.

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Minimizes

PriceCompetition

What is Cost-Plus Pric ing and Why

is i t Popular?

PerceivedFairness to

Both Buyersand Sellers

Sellers Are More

Certain AboutCosts Than

Demand

Adding a Standard Markup to the Cost of the Product

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Breakeven Analysis o r Target Prof i t Pr ic ing

200

400

600

800

1,000

1,200

10 20 30 40 50

Total Revenue

Total Cost

Fixed Cost

Target Profit($200,000)

Sales Volume in Units (thousands)

Costin

Dollar

s(thousands)

Tries to Determine the Price at Which a Firm WillBreak Even or Make a Target Profit

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Value-Based Pricing

Product

Cost

Price

Value

Customers

Customer

Value

Price

Cost

Product

Cost-Based Pricing Value-Based Pricing

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Competi t ion -Based Pric ing

Setting Prices

Sealed-BidCompany Sets Prices Based on

What They Think CompetitorsWill Charge.

Going-RateCompany Sets Prices Based on What

Competitors Are Charging.

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