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Ch6 Pricing

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Chapter 6 Pricing Products: Pricing Considerations,  Approaches, and Strategy
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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


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