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POM
BBA 2K10 (A)
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1. What Is a Price?
2. Factors to ConsiderWhen Setting Prices
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Priceis the amount of money charged for a
product or service. It is the sum of allthe values that consumers give up in
order to gain the benefits of having orusing a product or service.
Priceis the only element in the marketing
mix that produces revenue; all otherelements represent costs
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Effective customer-oriented
pricing involves
understanding how much
value consumers place on
the benefits they receive
from the product and
setting a price that
captures that value
Customer Perception of Value
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Customer Perception of Value
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Customer Perception of Value
Value-based pricinguses the buyers
perceptions of value, not the sellers cost,as the key to pricing. Price is consideredbefore the marketing program is set.
Value-based pricing is customer driven
Cost-based pricing is product driven
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Customer Perception of Value
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Customer Perception of Value
Value-based pricing
Good-value pricing
Value-added pricing
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Customer Perception of Value
Good-value pricingoffers the right
combination of quality and good serviceto fair price
Existing brands are being redesigned tooffer more quality for a given price or
the same quality for less price
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Customer Perception of Value
Everyday low pricing (EDLP) involves charging a
constant everyday low price with few or notemporary price discounts
High-low pricing involves charging higher prices on
an everyday basis but running frequentpromotions to lower prices temporarily on
selected items
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Customer Perception of Value
Value-added pricing attaches value-added
features and services to differentiateoffers, support higher prices, and buildpricing power
Pricing poweris the ability to escape pricecompetition and to justify higher pricesand margins without losing market share
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Company and Product Costs
Cost-based pricing adds a standard markup
to the cost of the product
Unit Cost=Variable cost + Fixed Cost
Unit SalesMark Up Price= Unit Cost
1-Desired Return on Sales
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Company and Product Costs
Types of costs
Fixed costs
Variable costs
Total costs
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Company and Product Costs
Fixed costsare the costs that do not vary
with production or sales level
Rent
Heat
Interest Executive salaries
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Company and Product Costs
Variable costsare the costs that vary with
the level of production
Packaging
Raw materials
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Experience or learning
curveis when averagecost falls as production
increases because fixed
costs are spread over
more units
Costs as a Function of Production Experience
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Break-Even Analysis and Target Profi t Pricing
Break-even pricing is the price when total
costs are equal to total revenue andthere is no profit
Target profit pricing is the price at which
the firm will break even or make theprofit its seeking
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Break-Even Volume
fixed cost
price-variable cost
Break-Even Analysis and Target Profi t Pricing
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Other I nternal and External Consideration
Affecting Price Decisions
Customer perceptions of value set theupper limit for prices, and costs set the
lower limit
Companies must consider internal and
external factors when setting prices
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Other I nternal and External Consideration
Affecting Price Decisions
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Other I nternal and External Considerations
Affecting Price Decisions
Target pricingstarts with an ideal sellingprice based on consumer value
considerations and then targets costs
that will ensure that the price is met
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Other I nternal and External Consideration
Affecting Price Decisions
Non-price strategies differentiate themarketing offer to make it worth a
higher price
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Other I nternal and External Consideration
Affecting Price Decisions
Organizational considerations include: Who should set the price
Who can influence the prices
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Other I nternal and External Consideration
Affecting Price Decisions
The Market and Demand
Before setting prices, the marketer must
understand the relationship between
price and demand for its products
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Other I nternal and External Consideration
Affecting Price Decisions
Types of markets Pure competition
Monopolistic competition
Oligopolistic competition Pure monopoly
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Other I nternal and External ConsiderationAffecting Price Decisions
Pure competitionis a market with many buyers
and sellers trading uniform commodities whereno single buyer or seller has much effect onmarket price
Monopolistic competitionis a market with many
buyers and sellers who trade over a range ofprices rather than a single market price withdifferentiated offers
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Other I nternal and External Consideration
Affecting Price Decisions
Oligopolistic competitionis a market with fewsellers because it is difficult for new sellers toenter who are highly sensitive to each otherspricing and marketing strategies
Pure monopolyis a market with only one seller. In
a regulated monopoly, the government permitsa price that will yield a fair return. In a non-regulated monopoly, companies are free to seta market price.
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Other I nternal and External Consideration
Affecting Price Decisions
The demand curve shows the number of units themarket will buy in a given period at differentprices
Normally, demand and price are inverselyrelated
Higher price = lower demand For prestige (luxury) goods, higher price can
equal higher demand when consumers perceivehigher prices as higher quality
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The Demand Curve
Other I nternal and External Consideration
Affecting Price Decisions
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Other I nternal and External ConsiderationAffecting Pr ice Decisions
Price elasticity of demandillustrates the response of demand to
a change in price
Inelastic demandoccurs when demand hardly changes when there isa small change in price
Elastic demandoccurs when demand changes greatly for a small
change in price
Price elasticity of demand= % change in quantity demand
% change in price
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Other I nternal and External Consideration
Affecting Price Decisions
Competitor's Strategies and Prices
Factors to consider
Comparison of offering in terms of customer
value
Strength of competitors Competition pricing strategies
Customer price sensitivity
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Other I nternal and External Consideration
Affecting Price Decisions
Other external factors Economic conditions
Resellers response to price
Government
Social concerns