Factors affecting Price

Marketing
Objectives
Survival
Low Prices to Cover Variable Costs and
Some Fixed Costs to Stay in Business.
Current Profit Maximization Choose the Price that Produces the Maximum Current Profit, Etc.
Market Share Leadership
Low as Possible Prices to Become
the Market Share Leader.
Product Quality Leadership
High Prices to Cover Higher
Performance Quality and R & D.
Internal Factors Affecting Pricing Decisions: Marketing Objectives

Price
Product Design
Distribution
Promotion
Nonprice
Positions
Internal Factors Affecting Pricing Decisions: Marketing Mix
Customers Seek Products that Give Them the Best
Value in Terms of Benefits Received for the Price Paid.

Market and
Demand
Competitors’ Costs,
Prices, and Offers
Other External Factors
Economic Conditions
Reseller Needs
Government Actions
Social Concerns
External Factors Affecting Pricing Decisions

Major Considerations in Setting Price (Fig. 10.5)

Cost-Based Pricing

Cost-Based Versus Value-Based Pricing

Setting Prices
Sealed-Bid
Company Sets Prices Based on
What They Think Competitors
Will Charge.
Going-Rate
Company Sets Prices Based on What
Competitors Are Charging.
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Competition-Based Pricing

New Product Pricing Strategies
Market Skimming
Setting a High Price for a New Product to “Skim” Maximum Revenues from the Target Market.
Results in Fewer, But More Profitable Sales.
Use Under These Conditions:
Product’s Quality and Image Must Support Its Higher Price.
Costs Can’t be so High that They Cancel the Advantage of Charging More.
Competitors Shouldn’t be Able to Enter Market Easily and Undercut the High Price.

New Product Pricing Strategies
Market Penetration
Setting a Low Price for a New Product in Order to “Penetrate” the Market Quickly and Deeply.
Attract a Large Number of Buyers and Win a Larger Market Share.
Use Under These Conditions:
Market Must be Highly Price-Sensitive so a Low Price Produces More Market Growth.
Production/ Distribution Costs Must Fall as Sales Volume Increases.
Must Keep Out Competition & Maintain Its Low Price Position or Benefits May Only be Temporary.

Product Mix-Pricing Strategies:
Product Line Pricing
Involves setting price steps between various products in a product line based on:
Cost differences between products,
Customer evaluations of different features, and
competitors’ prices.

Product Mix- Pricing Strategies
Optional-Product
Pricing optional or accessory products sold with the main product. i.e camera bag.
Captive-Product
Pricing products that must be used with the main product. i.e. film.

Product Mix- Pricing Strategies
By-Product
Pricing low-value by-products to get rid of them and make the main product’s price more competitive.
i.e. sawdust, Zoo Doo
Product-Bundling
Combining several products and offering the bundle at a reduced price.
i.e. theater season tickets.

Discount and Allowance Pricing

Psychological Pricing
Considers the psychology of prices and not simply the economics.
Customers use price less when they can judge quality of a product.
Price becomes an important quality signal when customers can’t judge quality; price is used to say something about a product.
Value $22.00
Sale $14.99