089 Pricing
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The document discusses key concepts related to pricing, including defining price from the perspective of sellers and consumers. It explains approaches to selecting base price levels, such as demand-oriented, cost-oriented, profit-oriented, and competition-oriented. The document also covers calculating total revenue and costs, estimating demand curves, break-even analysis, pricing objectives and constraints that firms consider when determining prices.
089 Pricing
- 2. NATURE AND IMPORTANCE OF PRICE What Is Price? To the seller...To the seller... Price is revenuePrice is revenue and profit sourceand profit source To the seller...To the seller... Price is revenuePrice is revenue and profit sourceand profit source To the consumer...To the consumer... Price is what you givePrice is what you give up to get what you wantup to get what you want To the consumer...To the consumer... Price is what you givePrice is what you give up to get what you wantup to get what you want
- 3. THE PRICING EQUATION FOR CONSUMERS PRICE = LIST PRICE - INCENTIVES & ALLOWANCES + EXTRA FEES
- 4. THE PROFIT EQUATION FOR SELLERS Profit = Total revenue - Total cost or Profit = (Unit price × Quantity sold) −Total cost
- 5. WAYS TO SELECT BASE PRICE LEVELS Demand oriented – focus on consumer preference Cost oriented – focus on business’s expenses Profit oriented – focus on profit Competition oriented – focus on the marketplace players
- 9. PRICING
- 10. COST ORIENTED APPROACHES • Cost-Oriented Approaches Standard Markup Pricing add the standard industry fixed % to my costs. Easy to implement. Cost-Plus Pricing add a standard £ amount to my costs- like £500.00 for shipping and handling
- 13. Profit-Oriented Pricing Objectives-Profit-Oriented Pricing Objectives- Sales revenueSales revenue Profit-Oriented Pricing Objectives-Profit-Oriented Pricing Objectives- Sales revenueSales revenue Sales-Oriented Pricing Objectives-Sales-Oriented Pricing Objectives-Sales-Oriented Pricing Objectives-Sales-Oriented Pricing Objectives- Status Quo Pricing Objectives-Status Quo Pricing Objectives- Survival, social responsibilitySurvival, social responsibility Status Quo Pricing Objectives-Status Quo Pricing Objectives- Survival, social responsibilitySurvival, social responsibility Market share, unit volume PRICING OBJECTIVES
- 14. PRICING CONSTRAINTS Demand for the Product Class, Product, & Brand Newness of the Product: Stage in the Product Life Cycle Cost of Producing and Marketing the Product Competitors’ Prices
- 15. ESTIMATING DEMAND AND REVENUE • Consumer Tastes • Price and Availability of Similar Products • Consumer Income levels • Changes in external environment Always use price first, but must adjust for:
- 16. demand curve for Newsweek (initial conditions) €
- 17. demand curve for Newsweek (shift in demand)
- 18. HOW MUCH MORE WILL THEY BUY WHEN I LOWER PRICE? Price Elasticity of Demand InelasticInelastic DemandDemand InelasticInelastic DemandDemand An increase or decrease in price will not significantly affect demand ElasticElastic DemandDemand ElasticElastic DemandDemand Consumers buy more or less of a product when the price changes
- 19. Price set depends on costs How to value them? Total revenue is the total money received from the sale of a product Total Revenue = Price X Quantity FUNDAMENTAL REVENUE CONCEPT
- 20. Deviate with changes in level of output Deviate with changes in level of output Total CostsTotal CostsTotal CostsTotal Costs VariableVariable CostsCosts VariableVariable CostsCosts Fixed CostsFixed CostsFixed CostsFixed Costs Do not deviate as level of output changes Do not deviate as level of output changes FUNDAMENTAL COST CONCEPT How do you know when you’re making money?
- 21. CALCULATING A BREAK EVEN POINT
- 22. IssuesIssues ThatThat LimitLimit PricingPricing DecisionsDecisions IssuesIssues ThatThat LimitLimit PricingPricing DecisionsDecisions Deceptive pricing- can’t bait and switchDeceptive pricing- can’t bait and switch Price Fixing-Manufacturer can’t agree with competitors or resellers to set price Price Fixing-Manufacturer can’t agree with competitors or resellers to set price Price Discrimination-can’t set a different price for the same item for two different customers Price Discrimination-can’t set a different price for the same item for two different customers Predatory Pricing-can’t sell an item at a loss to bankrupt the competition Predatory Pricing-can’t sell an item at a loss to bankrupt the competition LEGAL AND ETHICAL CONSIDERATIONS
- 23. SETTING A FINAL PRICE • Step 1: Set an Approximate Price Level pick a starting range using demand and break even analysis One-Price Policy – Dollar Store or no haggling • Step 2: Set the Specific List or Quoted Price lexible-Price Policy- different prices for different buyers and buying situations
- 24. SETTING A FINAL PRICE • Step 3: Make Special Adjustments to the List or Quoted Price Discounts • Quantity Discounts • Seasonal Discounts • Trade Discounts to resellers • Cash Discounts
- 25. SETTING A FINAL PRICE Promotional Allowances – if you sell 12, 13th is free Trade-In Allowances - like for cars Allowances • Everyday Low Pricing-reduce promotional allowances but also reduce price of item so reseller sells more
- 26. Uniform Delivered Pricing – seller pays shipping and charges it to all buyers equally, but holds title during transit FOB Origin Pricing – buyer pays shipping owns goods in transit Geographical Adjustments SETTING A FINAL PRICE
- 27. Price (P) Price (P) is the money or other considerations (including other goods and services) exchanged for the ownership or use of a good or service. Price (P) is the money or other considerations (including other goods and services) exchanged for the ownership or use of a good or service.
- 28. Demand Curve A demand curve is a graph relating the quantity sold and price, which shows the maximum number of units that will be sold at a given price. A demand curve is a graph relating the quantity sold and price, which shows the maximum number of units that will be sold at a given price.
- 29. Total Cost (TC) Total cost (TC) is the total expense incurred by a firm in producing and marketing a product. Total cost (TC) equals the sum of fixed cost (FC) and variable cost (VC) or TC = FC + VC. Total cost (TC) is the total expense incurred by a firm in producing and marketing a product. Total cost (TC) equals the sum of fixed cost (FC) and variable cost (VC) or TC = FC + VC.
- 30. Fixed Cost (FC) Fixed cost (FC) is the sum of the expenses of the firm that are stable and do not change with the quantity of a product that is produced and sold. Fixed cost (FC) is the sum of the expenses of the firm that are stable and do not change with the quantity of a product that is produced and sold.
- 31. Variable Cost (VC) Variable cost (VC) is the sum of the expenses of the firm that vary directly with the quantity of a product that is produced and sold. Variable cost (VC) is the sum of the expenses of the firm that vary directly with the quantity of a product that is produced and sold.
- 32. Break-Even Analysis Break-even analysis is a technique that analyzes the relationship between total revenue and total cost to determine profitability at various levels of output. Break-even analysis is a technique that analyzes the relationship between total revenue and total cost to determine profitability at various levels of output.
- 33. Pricing Objectives Pricing objectives involve specifying the role of price in an organization’s marketing and strategic plans. Pricing objectives involve specifying the role of price in an organization’s marketing and strategic plans.
- 34. Pricing Constraints Pricing constraints involve factors that limit the range of prices a firm may set. Pricing constraints involve factors that limit the range of prices a firm may set.