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Title: Pricing%20Concepts


1
Pricing Concepts
16
chapter
Prepared by Deborah Baker Texas Christian
University
2
Learning 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
3
Learning 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
4
Learning 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
5
Learning Objective
1
Discuss the importance of pricing decisions to
the economy and to the individual firm.
6
The 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
7
What is Price?
1
Price is that which is given up in an exchange to
acquire a good or service.
8
The Importance of Priceto Marketing Managers
1
9
The 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
10
Trends Influencing Price Setting
1
11
Learning Objective
2
List and explain a variety of pricing
objectives.
12
Pricing Objectives
2
13
Profit-Oriented Pricing Objectives
2
14
Profit Maximization
2
Setting prices so that total revenue is as large
as possible relative to total costs.
15
Return on Investment
2
ROI Net Profit after taxes
Total assets
16
Sales-Oriented Pricing Objectives
2
17
Market Share
2
A companys product sales as a percentage of
total sales for that industry.
18
Sales Maximization
2
  • Short-term objective to maximize sales
  • Ignores profits, competition, and the marketing
    environment
  • May be used to sell off excess inventory

19
Status Quo Pricing Objectives
Status Quo Pricing Objectives
2
Maintain existing prices
Meet competitions prices
20
Learning Objective
3
Explain the role of demand in price
determination.
21
Demand and Supply
3
22
Elasticity of Demand
3
Consumers responsiveness or sensitivity to
changes in price.
23
Elasticity of Demand
3
24
Elasticity of Demand
3
25
Factors that Affect Elasticity
3
26
Learning Objective
4
Understand the concept of yield management
systems.
27
Yield Management Systems
4
YMS
A technique for adjusting prices that uses
complex mathematical software to profitably fill
unused capacity.
28
Yield Management Systems
4
29
Learning Objective
5
Describe cost-oriented pricing strategies.
30
The Cost Determinant of Price
5
31
The Cost Determinant of Price
5
32
Markup Pricing
5
33
Break-Even Pricing
5
34
Learning 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.
35
Other Determinants of Price
6
36
Stages in the Product Life Cycle
6
37
Distribution Strategy
6
38
The Impact of the Internet
6
  • Allows price and product comparisons
  • Prices are coming down
  • Data collection allows sellers to tailor products
    and prices

39
Extranet
6
A private electronic network that links a company
with its suppliers and customers.
40
Prestige Pricing
6
Charging a high price to help promote a
high-quality image.
41
Indicators of Quality
6
42
Learning Objective
7
Describe the procedure for setting the right
price.
43
Steps in Setting the Right Price
7
44
Pricing Objectives
7
45
Price 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.
46
Choosing a Price Strategy
7
47
Price Skimming
7
48
Penetration 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.
49
Penetration Pricing
7
50
Status Quo Pricing
7
51
Learning Objective
8
Identify the legal and ethical constraints on
pricing decisions.
52
The Legality and Ethics ofPrice Strategy
8
53
Unfair Trade Practice Acts
8
Laws that prohibit wholesalers and retailers from
selling below cost.
54
Price Fixing
8
An agreement between two or more firms on the
price they will charge for a product.
55
Price 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

56
Robinson-Patman Act Defenses
Seller Defenses
8
Cost
Market Conditions
Competition
57
Predatory 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.
58
Learning Objective
9
Explain how discounts, geographic pricing, and
other special pricing tactics can be used to
fine-tune the base price.
59
Tactics for Fine-Tuning the Base Price
9
60
Tactics for Fine-Tuning the Base Price
9
61
Value-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.
62
Trade 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.
63
Geographic Pricing
9
64
Geographic Pricing
9
65
Geographic Pricing
9
66
Special Pricing Tactics
9
67
Consumer Penalties
Businesses Impose Consumer Penalties if...
9
An irrevocable loss of revenue is suffered
Additional transaction costs are incurred
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