Setting Price: Pricing Procedure & Factors
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Setting Price: Pricing Procedure & Factors
- 1. Setting the Price Pricing Procedure • Select pricing objective • Determine demand • Estimate costs • Analyze competition • Select pricing method • Select final price • Survival • Maximize current profits • Maximize market share • Penetration strategy • Market skimming • Skimming strategy • Product quality leaders • Partial cost recovery
- 2. Setting the Price Pricing Procedure • Select pricing objective • Determine demand • Estimate costs • Analyze competition • Select pricing method • Select final price • Understand factors that affect price sensitivity • Estimate demand curves • Understand price elasticity of demand • Elasticity • Inelasticty
- 3. Marketing Strategies Conditions Under Which Consumers are Less Price Sensitive: • Product is more distinctive • Buyers are less aware of substitutes • Buyers cannot easily compare quality of substitutes • The expenditure is a lower part of buyer’s total income • The expenditure is small compared to the total cost • Part of the cost is borne by another party • The product is used with assets previously bought • The product is assumed to have more quality, prestige, or exclusiveness • Buyers cannot store the product
- 4. Marketing Strategies Conditions Under Which Demand is Less Elastic: • There are few or no substitutes • Buyers do not readily notice the higher price • Buyers are slow to change their buying habits and search for lower prices • Buyers think higher prices are justified
- 5. Setting the Price Pricing Procedure • Select pricing objective • Determine demand • Estimate costs • Analyze competition • Select pricing method • Select final price • Types of costs and levels of production must be considered • Accumulated production leads to cost reduction via the experience curve • Differentiated marketing offers create different cost levels
- 6. Key Pricing Terms: Fixed costs: do not vary directly with changes in level of production Variable costs: vary with production Total costs: sum of fixed and variable costs a given level of production Average cost: cost per unit at a given level of production Setting the Price
- 7. Setting the Price Pricing Procedure • Select pricing objective • Determine demand • Estimate costs • Analyze competition • Select pricing method • Select final price • Firms must analyze the competition with respect to: • Costs • Prices • Possible price reactions • Pricing decisions are also influenced by quality of offering relative to competition
- 8. Setting the Price Pricing Procedure • Select pricing objective • Determine demand • Estimate costs • Analyze competition • Select pricing method • Select final price • Price-setting begins with the three “C’s” • Select method: • Markup pricing • Target-return pricing • Perceived-value pricing • Value pricing • Going-rate pricing • Auction-type pricing • Group pricing
- 9. Setting the Price Pricing Procedure • Select pricing objective • Determine demand • Estimate costs • Analyze competition • Select pricing method • Select final price • Requires consideration of additional factors: • Psychological pricing • Gain-and-risk-sharing pricing • Influence of other marketing mix variables • Company pricing policies • Impact of price on other parties