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10-1

Chapter 10

Pricing Products:

Pricing Considerations

and Approaches

PRINCIPLES OF MARKETING

Eighth EditionPhilip Kotler and Gary Armstrong

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10-2Factors to Consider When SettingPrices

Internal Factors

PricingDecisions

External Factors

Target

MarketPositioningObjectives

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10-3Internal Factors Affecting PricingDecisions

MarketingObjectives

Marketing-MixStrategy

Costs

OrganizationalConsiderations

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10-4Marketing Objectives that AffectPricing Decisions

Marketing

Objectives

Survival

Low Prices to Cover Variable Costs andSome Fixed Costs to Stay in Business.

Current Profit Maximization

Choose the Price that Produces theMaximum Current Profit, Cash Flow or ROI.

Market Share Leadership

Low as Possible Prices to Become

the Market Share Leader.

Product Quality Leadership

High Prices to Cover HigherPerformance Quality

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10-5Marketing Mix Variables that AffectPricing Decisions

Marketing-MixStrategy

Product Designand Quality

Distribution

Promotion

Non-PriceFactors

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10-6Types of Cost Factors thatAffect Pricing Decisions

Total CostsSum of the Fixed and Variable Costs for a Given

Level of Production

Variable Costs

Costs that do vary

directly with thelevel of production.

Raw materials

Fixed Costs(Overhead)

Costs that dontvary with sales orproduction levels.

Executive SalariesRent

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10-7Costs Considerations

Costp

erunit

12

3 4SRAC

LRAC

Quantity Produced per Day

1,0

00

2,0

00

3,0

00

4,0

00

Cost Per Unit at Different Levels of Production Per Period

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10-8External Factors Affecting PricingDecisions

Market andDemand

Competitors Costs,Prices, and Offers

Other External FactorsEconomic Conditions

Reseller NeedsGovernment Actions

Social Concerns

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10-9The Market and Demand Factors thatAffect Pricing Decisions

Pure CompetitionMany Buyers and Sellers WhoHave Little Affect on the Price.

Monopolistic CompetitionMany Buyers and Sellers Trading

Over a Range of Prices.

Oligopolistic CompetitionFew Sellers Each Sensitive to Others

Pricing/ Marketing Strategies

Pure MonopolySingle Seller

Different Types of Markets

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10-10Demand Curves

Price

Quantity Demanded per Period

A. Inelastic Demand -Demand Hardly Changes Witha Small Change in Price.

P2

P1

Q1Q2

Pri

ce

Quantity Demanded per Period

P2

P1

Q1Q2

B. Elastic Demand -Demand Changes Greatly Witha Small Change in Price.

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10-11

Minimizes

PriceCompetition

What is Cost-Plus Pricing and Whyis it Popular?

PerceivedFairness to

Both Buyersand Sellers

Sellers Are More

Certain AboutCosts Than

Demand

Adding a Standard Markup to the Cost of the Product

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10-12Breakeven Analysis or Target Profit Pricing

200

400

600

800

1,000

1,200

10 20 30 40 50

Total Revenue

Total Cost

Fixed Cost

Target Profit($200,000)

Sales Volume in Units (thousands)

Costin

Dollar

s(thousands)

Tries to Determine the Price at Which a Firm WillBreak Even or Make a Target Profit

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10-13Value-Based Pricing

Product

Cost

Price

Value

Customers

Customer

Value

Price

Cost

Product

Cost-Based Pricing Value-Based Pricing

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10-14Competition-Based Pricing

Setting Prices

Sealed-BidCompany Sets Prices Based on

What They Think Competitors

Will Charge.

Going-RateCompany Sets Prices Based on What

Competitors Are Charging.

??