Pricing products: pricing considerations and approaches. Chapter 10

decisions
Identify and define the external factors affecting pricing decisions, including the impact of consumer perceptions of price and value
Contrast the three general approaches to setting prices

ability to sell excess inventory to sellers
13.5 million user customer base
Tremendous growth

Most deals relate to travel or time sensitive / perishable services
Not all ventures have been profitable
Some customers find it difficult to commit to purchase prior to learning details

the sum of the values that consumers exchange for the benefits of having or using the product or service.

Goal 1: Identify and define internal factors affecting pricing decisions

1: Identify and define internal factors affecting pricing decisions

behavior and tailor offers.
Change prices on the fly to adjust for changes in demand or costs.
Aid consumers with price comparisons.
Negotiate prices in online auctions and exchanges.

Goal 1: Identify and define internal factors affecting pricing decisions

flexible element
Can be changed quickly
Common Pricing Mistakes
Reducing prices too quickly to get sales
Pricing based on costs, not customer value

Goal 1: Identify and define internal factors affecting pricing decisions

influences pricing strategy
Other pricing objectives:
Survival
Current profit maximization
Market share leadership
Product quality leadership

Internal Factors

Goal 1: Identify and define internal factors affecting pricing decisions

be carefully coordinated with the other marketing mix elements
Target costing is often used to support product positioning strategies based on price
Nonprice positioning can also be used

Internal Factors

Goal 1: Identify and define internal factors affecting pricing decisions

costs:
Variable
Fixed
Total costs
How costs vary at different production levels will influence price setting
Experience (learning) curve affects price

Internal Factors

Goal 1: Identify and define internal factors affecting pricing decisions

the price?
Small companies: CEO or top management
Large companies: Divisional or product line managers
Price negotiation is common in industrial settings where pricing departments may be created

Internal Factors

Goal 1: Identify and define internal factors affecting pricing decisions

prices, and offers
Other environmental elements

Types of markets
Pure competition
Monopolistic competition
Oligopolistic competition
Pure monopoly
Consumer perceptions of price and value
Price-demand relationship
Demand curve
Price elasticity of demand

External Factors

Goal 2: Identify and define external factors affecting pricing decisions

prices, and offers
Other environmental elements

Consider competitors’ costs, prices, and possible reactions
Pricing strategy influences the nature of competition
Low-price low-margin strategies inhibit competition
High-price high-margin strategies attract competition
Benchmarking costs against the competition is recommended

External Factors

Goal 2: Identify and define external factors affecting pricing decisions

prices, and offers
Other environmental elements

Economic conditions
Affect production costs
Affect buyer perceptions of price and value
Reseller reactions to prices must be considered
Government may restrict or limit pricing options
Social considerations may be taken into account

External Factors

Goal 2: Identify and define external factors affecting pricing decisions

demand and competition
Popular pricing technique because:
It simplifies the pricing process
Price competition may be minimized
It is perceived as more fair to both buyers and sellers

Goal 3: Contrast the three general approaches to setting prices

500,000
- Expected sales: 100,000 units - Desired Sales Markup: 20%
Variable Cost + Fixed Costs/Unit Sales = Unit Cost
$20 + $500,000/100,000 = $25 per unit
Unit Cost/(1 – Desired Return on Sales) = Markup Price
$25 / (1 - .20) = $31.25

General Pricing Approaches

Goal 3: Contrast the three general approaches to setting prices

show total cost and total revenues at different levels of unit volume.
The intersection of the total revenue and total cost curves is the break-even point.
Companies wishing to make a profit must exceed the break-even unit volume.

Goal 3: Contrast the three general approaches to setting prices

costs to set price.
Measuring perceived value can be difficult.
Consumer attitudes toward price and quality have shifted during the last decade.
Value pricing at the retail level
Everyday low pricing (EDLP) vs. high-low pricing

Goal 3: Contrast the three general approaches to setting prices