The exchange value of a good or service in the marketplace
Several major influences are considered when establishing price: Nature of the Market (Market Structure) Consumer Demand Production and Marketing Costs Channel Member Profit Expectations
Consumer Demand Pricing Elastic Demand – A situation where a small change in price results in a large change in volume. Example: A price increase of 10% results in a volume decrease of 25%. In this case total revenues would go down. Inelastic Demand – A situation in which a change in price does not have a significant impact on the quantity purchased. Example: A price increase of 5% results in a volume decrease of only 2%. In this case total revenues would go up.
Cost Influences Pricing Production, marketing, and other costs must be considered when establishing price. To protect profit margins a manufacturer will consider programs to reduce costs .
Competition Based Pricing Above competition Equal to competition Below competition
Typically, there are three basic pricing objectives : Maximizing Profit Maximizing Sales Volume Establishing a Competitive Position
Price skimming
Price penetration
TACTICS Captive-Product Pricing – Adding ancillary or captive products that facilitate use of the original product; for example, a low priced cell phone my require an high priced plan. Product-Bundling Pricing – The seller bundles products and features at t a set price. Bundling makes a package look attractive.
Psychological Pricing Prestige Pricing - A situation where a high price contributes to the image of a product and to the status of the buyer. Odd-Even Pricing Customary Pricing Price Lining - The retailer is satisfied with an average profit margin in a certain price range even though the cost of individual suits may vary in that price range. Unit Pricing - unit of measurement (cost per gram or cost per millilitre). How does the college price their ‘products’?