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Chapter 6
Pricing Products:
Pricing Considerations,
Approaches, and Strategy
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� Definition: The amount of money
charged for a product.
� Most flexible element of marketing mix
� Gets us into the most trouble
Price
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Inter nal Factors
Pricing
Decisions
Exter nal Factors
Factors to consider when setting prices
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MarketingObjectives
Marketing-MixStr ategy
Costs
Internal Factors Affecting Pricing
Decisions
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Marketing
Objectives
Marketing
Objectives
SurvivalLow Prices to Cover Variable Costs andSome Fixed Costs to Stay in Business.
SurvivalLow Prices to Cover Variable Costs andSome Fixed Costs to Stay in Business.
Current Pr of itM
aximizationChoose the Price that Pr oduces the
Maximum Current Pr of it, Cash Flow or ROI.
Current Pr of itM
aximizationChoose the Price that Pr oduces the
Maximum Current Pr of it, Cash Flow or ROI.
Market Share Leadership
Low as Possible Prices to Become
the Market Share Leader.
Market Share Leadership
Low as Possible Prices to Become
the Market Share Leader.
SurvivalLow Prices to Cover Variable Costs andSome Fixed Costs to Stay in Business.
SurvivalLow Prices to Cover Variable Costs andSome Fixed Costs to Stay in Business.
Pr oduct Quality Leadership
High Prices to Cover Higher Quality and Guest Service Levels
Pr oduct Quality Leadership
High Prices to Cover Higher Quality and Guest Service Levels
Marketing Objectives that Affect
Pricing Decisions
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Marketing-Mix Str ategy
Pr oduct Design
Distribution
Pr omotion
Non-Price Factors
Companies will consider price along with all the other Marketing-Mix elements when developing the Marketing pr ogr am. Price must be coor dinated with:
Marketing Mix Variables that Affect Pricing Decisions
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Total CostsSum of the Fixed and Variable Costs for a Given
Level of Pr oduction
Fixed Costs(Over head)
Costs that don¶tvar y with sales or
pr oduction levels.
Executive SalariesRent
Variable Costs
Costs that do var ydirectly with the
level of pr oduction.
Raw materials
Types of Cost Factors that Effect Pricing Decisions
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Competitors¶ prices and their possible reactions need to be considered when setting prices
Competition
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� Is that level of output where total revenues
and total costs will be equal.
(i.e.) Total revenues = Total CostsTR = TC
� At break even an organization will be neither
making a profit nor loss.
Break-even
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Pr oduct
Cost
Price
Value
Customers
Cost Based Pricing
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Customer
Value
Price
Cost
Pr oduct
Value-based Pricing
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Customer
Product
Price
Cost
Value
Competition-Based Pricing
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Market SkimmingMarket Skimming Market Penetr ationMarket Penetr ation
>Setting a high price for a new pr oduct toskim maximumrevenues f r om the tar get market.
>Results in f ewer ,more pr of itable sales.
>Popular night clubchar ges a high cover char ge
> Setting a low price
for a new pr oduct inor der to attr act alar ge number of guests.
>Results in a lar ger
market share.>New Marriott
Setting Initial Pr oduct Prices
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Discount Pricing
Discounts Based
On
Volume
Discounts Based
On
Time of Purchase
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� Pricing designed to have a positivepsychological impact.
� For example, selling a product at £4.95 rather than £5.
Psychological Pricing
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Promotional Pricing� Special-event pricing
� Cash discount
� Low-interest financing
� Longer payment terms
� Warranties & service contracts
� Psychological discounting