1. Fundamental Of
Marketing
MKT243
Chapter 11
Pricing Concept
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2. Slide Outline
• Pricing Objective
• Demand determination of price
• Cost determination of price
• Other determination of price
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3. What Is a Price?
Price is the amount of money charged for
a product or service. It is the sum of all
the values that consumers give up in
order to gain the benefits of having or
using a product or service.
Price is that which is given up in an
exchange to acquire a product and
service
Price is the only element in the marketing
mix that produces revenue; all other
elements represent costs
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4. The Importance of Price
Revenue = Unit Price Number of units sold
Revenue pays for every activity.
What’s left over is Profit.
Price
Low High
=
Price Price
Perceived Value
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5. Profit-Oriented Pricing
Objectives
Profit-Oriented Pricing Objectives
Profit-Oriented Pricing Objectives
Target
Target
Profit
Profit Satisfactory
Satisfactory Return on
Return on
Maximization
Maximization Profits
Profits Investment
Investment
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6. Pricing Objectives
1. Profit –Oriented Pricing Objective
i. Profit Maximization
-Setting prices so that Total Revenue is larger as possible
-As long as the revenue exceed the cost
ii. Satisfactory profits
-Setting prices so that company gets a reasonable level
of profits or consistent profits
-Level of profit must be consistent with the level of the
risk that the organization have to face
iii. Target return on Investment/ROI
-The higher the ROI, the better off the firms is
-High risk, High return (finance theory)
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8. Pricing Objectives
2. Sales-Oriented Pricing Objective
i. Market share-is a company’s sales as a
percentage of total sales for the industry
ii. Sales Maximization-Maximizing sales, ignores
profits, competition and marketing environment
as long as sales are rising
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9. Status Quo Pricing
Objectives
Status Quo Pricing Objectives
Status Quo Pricing Objectives
Maintain
Maintain Meet
Meet
existing
existing competition’s
competition’s
prices
prices prices
prices
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10. Pricing Objectives
3. Status-Quo Pricing Objective
i. A pricing objective that maintains existing
prices or meets competitor’s price
ii. Keep monitoring competitor’s prices, compare
prices and make adjustments
iii. Based on the competitor prices
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11. Demand and Supply
The quantity of a product that
The quantity of a product that
Demand
Demand will be sold in the market at various
will be sold in the market at various
prices for a specified period.
prices for a specified period.
The quantity of a product
The quantity of a product
Supply
Supply that will be offered to the market
that will be offered to the market
by a supplier at various prices
by a supplier at various prices
for a specific period.
for a specific period.
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12. Elasticity of Demand
Elastic
Consumers buy more or less
Elastic of a product when the
Demand
Demand price changes
Inelastic
An increase or decrease in
Inelastic price will not significantly
Demand
Demand affect demand
An increase in sales exactly
Unitary
Unitary offsets a decrease in prices,
Elasticity
Elasticity and revenue is unchanged
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13. Factors that Affect Elasticity
of Demand
Availability of substitutes
Availability of substitutes
Price relative to
Price relative to
purchasing power
purchasing power
Product durability
Product durability
A product’s other uses
A product’s other uses
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14. The Cost Determinant of
Price
Types of Costs
Types of Costs
Variable
Variable Fixed Costs
Fixed Costs
Costs
Costs
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15. The Cost Determinant of
Price
Markup pricing
Markup pricing
Keystoning
Keystoning
Methods
Methods
Used to
Used to Profit Maximization
Profit Maximization
Set Prices
Set Prices Pricing
Pricing
Break-Even
Break-Even
Pricing
Pricing
Target-Return
Target-Return
Pricing
Pricing
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16. Break-Even Pricing
Total Revenue fi t
Pro
4,000 Total Costs
Break-even point
Price
s
L os
2,000
Fixed costs
0 1,000 2,000 3,000 4,000 5,000 6,000
Quantity
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17. Other Determinants of Price
Stages of the
Stages of the
Product Life Cycle
Product Life Cycle
Competition
Competition
Distribution Strategy
Distribution Strategy
Promotion Strategy
Promotion Strategy
Perceived Quality
Perceived Quality
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Notas del editor
Note to Instructor Discussion Question How does a company like Starbuck’s price their products? This will lead to a good overview of the chapter as students will most likely focus on customers, costs and competitors.
