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Introduction
to
Chapter 19: Pricing Concepts
Designed & Prepared by Laura Rush
B-books, Ltd.
Copyright Cengage Learning 2013
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Learning Outcomes
LO1
Discuss the importance of pricing decisions
to the economy and to the individual firm
LO2
List and explain a variety of pricing objectives
LO3
Explain the role of demand in price
determination
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Learning Outcomes
LO4
Understand the concept of yield management
systems
LO5
Describe cost-oriented pricing strategies
LO6
Demonstrate how the product life cycle,
competition, distribution and promotion
strategies, guaranteed price matching,
customer demands, the Internet, and
perceptions of quality can affect price
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The Importance of Price
To the seller...
Price is revenue
To the consumer...
Price is the cost
of something
Price allocates resources
in a free-market economy
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What is Price?
Price is that which is given
up in an exchange to acquire
a good or service.
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The Importance of Price to
Marketing Managers
Revenue - The price charged to
customers multiplied by the
number of units sold.
Profit - Revenue minus expenses.
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Pricing Objectives
Profit-Oriented
Sales-Oriented
Status Quo
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Sales Maximization
• Short-term objective to maximize
sales
• Ignores profits, competition, and
the marketing environment
• May be used to sell
off excess inventory
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The Demand Determinant of Price
Demand - The quantity of a product
that will be sold in the market at
various prices for a
specified period.
Supply- The quantity of a
product that will be
offered to the market by a supplier
at various prices for a
specified period.
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How Demand and Supply
Establish Price
Price equilibrium - The price at
which demand and supply
are equal.
Elasticity of Demand Consumers’ responsiveness or
sensitivity to changes in price.
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Elasticity of Demand
Elastic
Demand
Inelastic
Demand
Unitary
Elasticity

Consumers buy more or less
of a product when the
price changes.

An increase or decrease in
price will not significantly
affect demand.

An increase in sales exactly
offsets a decrease in prices,
and revenue is unchanged.
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Factors that Affect Elasticity of
Demand
Availability of substitutes
Price relative to
purchasing power
Product durability
A product’s other uses
Rate of inflation
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Yield Management Systems
A technique for adjusting prices
that uses complex mathematical
software to profitably fill unused
capacity.
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The Cost Determinant of Price
Types of Costs
Variable
Cost
Fixed Cost
Varies with changes
in level of output
Does not change
as level of output changes
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The Cost Determinant of Price
Markup pricing
Methods
Used to
Set Prices
Keystoning
Profit Maximization
Pricing
Break-Even
Pricing
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Other Determinants of Price
Stages of the
Product Life Cycle
Competition
Distribution Strategy
Promotion Strategy
Perceived Quality
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The Impact of the Internet
Product selection
Second opinions from expert sites
Shopping bots
Internet auctions
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Promotion Strategy/Price
Guarantee
Promotion Strategy
•
Price used as promotional tool
•
Pricing can also be a tool for trade promotions
Price Guarantee
•
Match any competitor’s price
•
Signals to target market it is positioned as a lowprice dealer
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The Relationship of Price to Quality
Prestige Pricing - Charging a high
price to help promote a highquality image.
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Dimensions of Quality
1. Ease of use
2. Versatility
3. Durability
4. Serviceability
5. Performance
6. Prestige
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