Title: Pricing%20Concepts
1Pricing Concepts
16
chapter
Prepared by Deborah Baker Texas Christian
University
2Learning Objectives
1. Discuss the importance of pricing decisions
to the economy and to the individual firm. 2.
List and explain a variety of pricing
objectives. 3. Explain the role of demand in
price determination.
16
chapter
3Learning Objectives (continued)
4. Understand the concept of yield management
systems. 5. Describe cost-oriented pricing
strategies. 6. Demonstrate how the product life
cycle, competition, distribution and promotion
strategies, customer demands, the Internet and
extranets, and perceptions of quality can affect
price.
16
chapter
4Learning Objectives
7. Describe the procedure for settingthe right
price. 8. Identify the legal and ethical
constraints on pricing decisions. 9. Explain
how discounts, geographic pricing, and other
special pricing tactics can be used to fine-tune
the base price.
16
chapter
5Learning Objective
1
Discuss the importance of pricing decisions to
the economy and to the individual firm.
6The Importance of Price
1
To the consumer...Price is the cost of something
To the seller...Price is revenue and profit
source
In the broadest sense, price allocates resources
in a free-market economy
7What is Price?
1
Price is that which is given up in an exchange to
acquire a good or service.
8The Importance of Priceto Marketing Managers
1
9The Importance of Price
1
Marketers must select a price that is not too
high or not too low, a price that equals the
perceived value to target consumers
10Trends Influencing Price Setting
1
11Learning Objective
2
List and explain a variety of pricing
objectives.
12Pricing Objectives
2
13Profit-Oriented Pricing Objectives
2
14Profit Maximization
2
Setting prices so that total revenue is as large
as possible relative to total costs.
15Return on Investment
2
ROI Net Profit after taxes
Total assets
16Sales-Oriented Pricing Objectives
2
17Market Share
2
A companys product sales as a percentage of
total sales for that industry.
18Sales Maximization
2
- Short-term objective to maximize sales
- Ignores profits, competition, and the marketing
environment - May be used to sell off excess inventory
19Status Quo Pricing Objectives
Status Quo Pricing Objectives
2
Maintain existing prices
Meet competitions prices
20Learning Objective
3
Explain the role of demand in price
determination.
21Demand and Supply
3
22Elasticity of Demand
3
Consumers responsiveness or sensitivity to
changes in price.
23Elasticity of Demand
3
24Elasticity of Demand
3
25Factors that Affect Elasticity
3
26Learning Objective
4
Understand the concept of yield management
systems.
27Yield Management Systems
4
YMS
A technique for adjusting prices that uses
complex mathematical software to profitably fill
unused capacity.
28Yield Management Systems
4
29Learning Objective
5
Describe cost-oriented pricing strategies.
30The Cost Determinant of Price
5
31The Cost Determinant of Price
5
32Markup Pricing
5
33Break-Even Pricing
5
34Learning Objective
6
Demonstrate how the product life cycle,
competition, distribution and promotion
strategies, customer demands, the Internet and
extranets, and perceptions of quality can affect
price.
35Other Determinants of Price
6
36Stages in the Product Life Cycle
6
37Distribution Strategy
6
38The Impact of the Internet
6
- Allows price and product comparisons
- Prices are coming down
- Data collection allows sellers to tailor products
and prices
39Extranet
6
A private electronic network that links a company
with its suppliers and customers.
40Prestige Pricing
6
Charging a high price to help promote a
high-quality image.
41Indicators of Quality
6
42Learning Objective
7
Describe the procedure for setting the right
price.
43Steps in Setting the Right Price
7
44Pricing Objectives
7
45Price Strategy
7
A basic, long-term pricing framework, which
establishes the initial price for a product and
the intended direction for price movements over
the product life cycle.
46Choosing a Price Strategy
7
47Price Skimming
7
48Penetration Pricing
7
A pricing policy whereby a firm charges a
relatively low price for a product initially as a
way to reach the mass market.
49Penetration Pricing
7
50Status Quo Pricing
7
51Learning Objective
8
Identify the legal and ethical constraints on
pricing decisions.
52The Legality and Ethics ofPrice Strategy
8
53Unfair Trade Practice Acts
8
Laws that prohibit wholesalers and retailers from
selling below cost.
54Price Fixing
8
An agreement between two or more firms on the
price they will charge for a product.
55Price Discrimination
8
- The Robinson-Patman Act of 1936
- Prohibits any firm from selling to two or more
different buyers at different prices if the
result would lessen competition
56Robinson-Patman Act Defenses
Seller Defenses
8
Cost
Market Conditions
Competition
57Predatory Pricing
8
The practice of charging a very low price for a
product with the intent of driving competitors
out of business or out of a market.
58Learning Objective
9
Explain how discounts, geographic pricing, and
other special pricing tactics can be used to
fine-tune the base price.
59Tactics for Fine-Tuning the Base Price
9
60Tactics for Fine-Tuning the Base Price
9
61Value-Based Pricing
9
The price is set at a level that seems to the
customer to be a good price compared to the
prices of other options.
62Trade Loading
9
The practice of temporarily lowering the price to
induce wholesalers and retailers to buy more
goods than can be sold in a reasonable time.
63Geographic Pricing
9
64Geographic Pricing
9
65Geographic Pricing
9
66Special Pricing Tactics
9
67Consumer Penalties
Businesses Impose Consumer Penalties if...
9
An irrevocable loss of revenue is suffered
Additional transaction costs are incurred