Mktg -pricing08-students
- 2. OverviewOverview Definition of price Prices in BU113 companies Factors that influence the pricing decision Pricing objectives Three major pricing strategies and their advantages and disadvantages Pricing strategies over the product life cycle Pricing tactics
- 3. Price -- Definition • the amount of money charged for a product or service • the sum of all the values that consumers exchange for the benefits of having or using the product or service • Examples of “price?” – Tuition, rent, fare, retainer, toll, salary/wage, dues
- 4. Prices -- BU113 CompaniesPrices -- BU113 Companies • What objectives did the managers have in mind when they set their prices?
- 5. Factors in Setting PriceFactors in Setting Price
- 6. Pricing ObjectivesPricing Objectives Meet Business Objectives Volum e Sales M axim ization M arketShare Profitability Profit-M axim ization TargetReturn Goals Other Pricing Objectives Status Quo Image Social & Ethical Considerations
- 7. Price Strategies for New ProductsPrice Strategies for New Products PRICEPRICEPRICE Skimming Penetration Penetration Pricing Skimming Pricing Low price establish product in the market High price/Prestige pricing appeal to early adopters; recover high R&D costs Lower price over time Move inventory, stimulate D, extend product life
- 8. Marketing Strategy Over the Product Life Cycle INTRODUCTION GROWTH MATURITY DECLINE Marketing strategy Market development Increase market Defend market Maintain efficiency in emphasis share share exploiting product Promotion Mount sales Appeal to Emphasize Reinforce loyal Strategy promotion for mass market brand differences, customers; reduce product awareness benefits & loyalty promotion costs Place strategy Distribute through Build intensive Enlarge Be selective in selective outlets network of distribution distribution, trim outlets network unprofitable outlets Pricing High price/unique Lower price Price at or below Set price to strategy product / cover over time competition remain profitable production costs or reduce to Low price/gain liquidate market share
- 10. Elasticity of DemandElasticity of Demand measure of the sensitivity of demand to changes in prices not price sensitive - no real change in demand price sensitive - changes in demand Inelastic Demand Q2 Q1 Quantity PP11 PP22 Electricity Price Elastic Demand QQ22 Quantity PP11 PP22 Fast food Q1 Price
- 11. Market-based PricingMarket-based Pricing Pricing Existing Products/Services - 3 options Pricing below market prices price wars EX: airlines, store brand vs. manufacturer’s brand Dumping Pricing above prevailing market prices for similar products EX: Sony higher price = higher quality? Pricing at or near market prices
- 12. Pricing TacticsPricing Tactics Price Lining • Price points: Setting a limited number of prices for certain categories of products Psychological Pricing • Odd-even Discounting • Quantity discounts • Cash discounts (2/10 net 30) Web programs: free!
- 13. Cost-based Pricing (Cost-Plus)Cost-based Pricing (Cost-Plus) 1. Cover costscosts Material Labor Capital resources Marketing 2.2. Mark-upMark-up Targeted return for shareholders CostsCosts + mark-upmark-up == Sales priceSales price $1.00$1.00 ++ $0.50$0.50 = $1.50= $1.50 (50% markup)(50% markup) variable costs fixed costs
- 14. Mark-up Calculation – ExerciseMark-up Calculation – Exercise 1. Price per product 2. Less the cost per product (what you paid the supplier, e.g. total cost paid / # of items purchased) PriceSales UpMarkDollar UPMARK% − =−
- 16. Breakeven Point FormulaBreakeven Point Formula (Contribution Margin) cost/unitVariable–Price/unit CostsFixed QUANTITYBREAKEVEN =
- 17. Review • 5 Factors that influence prices • Pricing objectives • Pricing strategies at different stages of the Product Life Cycle (advantages/disadvantages) • Methods of Determining Prices – Elasticity of demand – Mark-up – Breakeven Analysis