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Chapter 6 Price Decisions

This document discusses pricing products and strategies. It defines price and lists internal and external factors that affect pricing decisions, such as costs, competitors, and demand. The major pricing strategies discussed are customer value-based pricing, cost-based pricing, and competition-based pricing. For new products, the strategies of market-skimming pricing and market-penetration pricing are presented.

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87 views14 pages

Chapter 6 Price Decisions

This document discusses pricing products and strategies. It defines price and lists internal and external factors that affect pricing decisions, such as costs, competitors, and demand. The major pricing strategies discussed are customer value-based pricing, cost-based pricing, and competition-based pricing. For new products, the strategies of market-skimming pricing and market-penetration pricing are presented.

Uploaded by

Nat Graphics
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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CHAPTER SIX

PRICING PRODUCTS
The Meaning of Pricing
Price
• The amount of money charged for a good or
service, or the sum of the values that customers
exchange for the benefits of having or using the
good or service.
• It is the only element in the marketing mix that
produces revenue; all other elements represent
costs.
• It is also one of the most flexible marketing mix
elements.
Factors Affecting Pricing Decisions
Internal Factors:
i) Overall marketing objectives
• Price is only one element of the company’s broader
marketing strategy.
• Before setting price, the company must decide on
its overall marketing strategy for the product or
service.
• Examples of common objectives are survival,
current profit maximization, market-share
maximization and product-quality leadership.
ii. Marketing-mix strategy

• Price decisions must be coordinated with other


mixes decisions to form a consistent & effective
marketing program.
• For example: producers using many resellers that are
expected to support & promote their products may
have to build larger reseller margins into their prices.
• The decision to position the product on high
performance quality will mean that the seller must
charge a higher price to cover higher costs.
• The intended price determines what product
features can be offered & what production costs can
be incurred.
iii. Costs
• Costs set the floor for the price that the company
can charge for its product.
• The company wants to charge a price that covers all
its costs.
• Many companies work to become the ‘low-cost
producers’ in their industries.
• Companies with lower costs can set lower prices
that result in greater sales & profits.
iv. Organizational
Considerations
• Management, must decide who within the
organization, should set prices.
• In small & large companies, prices are often set by
top management & by the by divisional or product
line managers, respectively.
• In industrial markets, salespeople may be allowed
to negotiate with customers within certain price
ranges.
External Factors
i. The market and demand
• It sets the upper price limit.
• Both consumer & industrial buyers balance the
price of a product or service against the benefits of
owning it.
• Thus, before setting prices, the marketer must
understand the relationship between price &
demand for its product.
ii. Competitors’ Costs, Prices & Offers

• Companies may follow the competitors conditions


to set their prices.
iii. Other external factors
• When setting prices, the company must also
consider other factors in its external environment.
Economic conditions, the government intervention,
social concerns, and others.
Major Pricing Strategies
• In setting prices, the company must also consider
competitors’ prices.
• No matter what price it charges– high, low or in-between–
the company must be certain to give customers superior
value for that price.
Major pricing
strategies..Cont’d…
1) Customer value-based pricing
• Setting price based on buyers’ perceptions of value
rather than on the seller’s cost.
• The company first assesses customer needs and
value perceptions.
2) Cost-based pricing
• Involves setting prices based on the costs of
producing, distributing & selling the product, plus a
fair rate of return for the company’s effort and risk.
• Includes the cost plus & break-even point pricing
3) Competition-based pricing
• Setting prices based on competitors’ strategies,
prices, costs & market offerings.
New product pricing strategies
• Pricing strategies usually change as the product passes
through its life cycle.
• The introductory stage is especially challenging.
• Companies bringing out a new product face the
challenge of setting prices for the first time.
• They can choose between two broad strategies:
market-skimming pricing & market-penetration
pricing.
A. Market-skimming pricing

• Many companies that invent new products set high


initial prices to skim revenues layer by layer from
the market.
• Market skimming makes sense only under certain
conditions.
the product’s quality and image must support
its higher price, and enough buyers must want
the product at that price.
competitors should not be able to enter the
market easily and undercut the high price.
B. Market-penetration pricing
• Companies set a low initial price to penetrate the
market quickly and deeply– to attract a large
number of buyers quickly and win a large market
share.
• The high sales volume results in falling costs,
allowing companies to cut their prices even further.

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