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Chapter 10

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  1. Chapter 10 Pricing Products: Pricing Considerations and Approaches

  2. Internal Factors Factors to Consider When Setting Prices Pricing Decisions Positioning Objectives Target Market External Factors

  3. Marketing Objectives Internal Factors Affecting PricingDecisions Marketing-Mix Strategy Costs Organizational Considerations

  4. Marketing Objectives that Affect Pricing Decisions 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, Cash Flow or ROI. Marketing Objectives Market Share Leadership Low as Possible Prices to Become the Market Share Leader. Product Quality Leadership High Prices to Cover Higher Performance Quality

  5. Marketing Mix Variables that Affect Pricing Decisions Product Design and Quality Marketing-Mix Strategy Non-Price Factors Distribution Promotion

  6. Types of Cost Factors that Affect Pricing Decisions • Total Costs • Sum of the Fixed and Variable Costs for a Given • Level of Production Fixed Costs (Overhead) Costs that don’t vary with sales or production levels. Executive Salaries Rent Variable Costs Costs that do vary directly with the level of production. Raw materials

  7. Costs Considerations Cost Per Unit at Different Levels of Production Per Period Cost per unit 1 2 SRAC 3 4 LRAC 1,000 2,000 3,000 4,000 Quantity Produced per Day

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

  9. Monopolistic Competition Many Buyers and Sellers Trading Over a Range of Prices. Pure Competition Many Buyers and Sellers Who Have Little Affect on the Price. Different Types of Markets The Market and Demand Factors that Affect Pricing Decisions Oligopolistic Competition Few Sellers Each Sensitive to Other’s Pricing/ Marketing Strategies Pure Monopoly Single Seller

  10. A. Inelastic Demand - Demand Hardly Changes With a Small Change in Price. P2 Price P1 Q2 Q1 Quantity Demanded per Period B. Elastic Demand - Demand Changes Greatly With a Small Change in Price. P’2 Price P’1 Q2 Q1 Quantity Demanded per Period Demand Curves

  11. What is Cost-Plus Pricing and Why is it Popular? Adding a Standard Markup to the Cost of the Product Sellers Are More Certain About Costs Than Demand Minimizes Price Competition Perceived Fairness to Both Buyers and Sellers

  12. 1,200 1,000 800 600 400 200 10 20 30 40 50 Breakeven Analysis or Target Profit Pricing Tries to Determine the Price at Which a Firm Will Break Even or Make a Target Profit Total Revenue Cost in Dollars (thousands) Target Profit ($200,000) Total Cost Fixed Cost Sales Volume in Units (thousands)

  13. Product Customer Cost Value Price Price Cost Value Product Customers Value-Based Pricing Cost-Based Pricing Value-Based Pricing

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