Transcript Chapter 10: Pricing Products: Pricing Considerations and

10-1
PRINCIPLES OF MARKETING
Eighth Edition
Philip Kotler and Gary Armstrong
Chapter 10
Pricing Products:
Pricing Considerations
and Approaches
 Copyright 1999 Prentice Hall
Factors to Consider When Setting
Prices
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Internal Factors
Positioning
Objectives
Pricing
Decisions
External Factors
 Copyright 1999 Prentice Hall
Target
Market
Internal Factors Affecting Pricing
Decisions
Marketing
Objectives
Marketing-Mix
Strategy
Costs
Organizational
Considerations
 Copyright 1999 Prentice Hall
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Marketing Objectives that Affect
Pricing Decisions
Survival
Low Prices to Cover Variable Costs and
Some Fixed Costs to Stay in Business.
Current Profit Maximization
Marketing
Choose the Price that Produces the
Maximum Current Profit, Cash Flow or ROI.
Objectives
Market Share Leadership
Low as Possible Prices to Become
the Market Share Leader.
Product Quality Leadership
High Prices to Cover Higher
Performance Quality
 Copyright 1999 Prentice Hall
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Marketing Mix Variables that Affect
Pricing Decisions
10-5
Product Design
and Quality
Non-Price
Factors
Marketing-Mix
Strategy
Promotion
 Copyright 1999 Prentice Hall
Distribution
Types of Cost Factors that
Affect Pricing Decisions
Total Costs
Sum of the Fixed and Variable Costs for a Given
Level of Production
Fixed Costs
(Overhead)
Costs that don’t
vary with sales or
production levels.
Executive Salaries
Rent
Variable Costs
Costs that do vary
directly with the
level of production.
Raw materials
 Copyright 1999 Prentice Hall
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Costs Considerations
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2,000
3
4
SRAC
4,000
2
3,000
1
1,000
Cost per unit
Cost Per Unit at Different Levels of Production Per Period
Quantity Produced per Day
 Copyright 1999 Prentice Hall
LRAC
External Factors Affecting Pricing
Decisions
Market and
Demand
Competitors’ Costs,
Prices, and Offers
Other External Factors
Economic Conditions
Reseller Needs
Government Actions
Social Concerns
 Copyright 1999 Prentice Hall
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The Market and Demand Factors that
Affect Pricing Decisions
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Pure Competition
Monopolistic Competition
Many Buyers and Sellers Who
Have Little Affect on the Price.
Many Buyers and Sellers Trading
Over a Range of Prices.
Different Types of Markets
Oligopolistic Competition
Few Sellers Each Sensitive to Other’s
Pricing/ Marketing Strategies
 Copyright 1999 Prentice Hall
Pure Monopoly
Single Seller
Demand Curves
10-10
Price
A. Inelastic Demand Demand Hardly Changes With
a Small Change in Price.
P2
P1
Price
Q2 Q1
Quantity Demanded per Period
B. Elastic Demand Demand Changes Greatly With
a Small Change in Price.
P’2
P’1
Q2
Q1
Quantity Demanded per Period
 Copyright 1999 Prentice Hall
What is Cost-Plus Pricing and Why
is it Popular?
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Adding a Standard Markup to the Cost of the Product
Sellers Are More
Certain About
Costs Than
Demand
Minimizes
Price
Competition
Perceived
Fairness to
Both Buyers
and Sellers
 Copyright 1999 Prentice Hall
Breakeven Analysis or Target Profit Pricing
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Cost in Dollars (thousands)
Tries to Determine the Price at Which a Firm Will
Break Even or Make a Target Profit
Total Revenue
1,200
1,000
Target Profit
($200,000)
800
Total Cost
600
400
Fixed Cost
200
10
20
30
40
Sales Volume in Units (thousands)
 Copyright 1999 Prentice Hall
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Value-Based Pricing
Cost-Based Pricing
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Value-Based Pricing
Product
Customer
Cost
Value
Price
Price
Value
Cost
Customers
Product
 Copyright 1999 Prentice Hall
Competition-Based Pricing
Setting Prices
Going-Rate
Company Sets Prices Based on What
Competitors Are Charging.
Sealed-Bid
? Company Sets Prices Based on
Competitors
? What TheyWillThink
Charge.
 Copyright 1999 Prentice Hall
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