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Chapter Sixteen Introduction to Pricing Concepts Objectives Define & discuss price Describe price interaction with the other “Ps” Analyze price’s role of in the economy Outline pricing strategy fundamentals Review relationship between price and organizational objectives Relate demand to price Overview demand & cost considerations on pricing Differentiate price elasticity, inelasticity, and crosselasticity Key Pricing Concepts Value: product’s power to stimulate exchange Barter: Money-less exchange Other terms: Rent Fee Donation Toll Honorarium Tuition Price in the Marketing Mix Pays for all of a firm’s List price = basic price activities quote Most flexible element Mark down = price in marketing mix in reduction free economy Consumer Major impact on store image Price & Competition Price only competition: Long distance telephone Internet service providers Commodities Nonprice competition: competition emphasizing marketing variables other than price Positioning Differentiation Branding Demand Curve Relationship between price and demand $5,500 $5,000 $4,500 $4,000 $3,500 $3,000 $2,500 8,000 13,000 18,000 Demand 23,000 28,000 Supply Curve Relationship between price and supply $5,500 Supply $5,000 $4,500 $4,000 $3,500 $3,000 $2,500 8,000 13,000 18,000 Demand 23,000 28,000 Equilibrium Price Supply = Demand = $4,000 $5,500 Supply $5,000 $4,500 $4,000 $3,500 $3,000 $2,500 8,000 13,000 18,000 Demand 23,000 28,000 Pricing Strategy Set pricing objectives Establish importance of price to target market Know demand d Understand costs s Determine strategy Relating Pricing to Other Marketing Objectives Company objectives Product objectives Marketing objectives Distribution objectives Promotion objectives Pricing strategies and policies Price objectives Actual prices Pricing Objectives: Income-Oriented ROI Profit maximization Cash flow Survival Pricing Objectives Sales oriented Competition oriented Market share Sales growth Avoid Meet Undercut Stabilize prices Pricing Objectives: Social Concerns Behave ethically Maintain employment Public education “Give back to the community” Target Market Considerations Who Price sensitivity Price perception Willingness to pay Relative Price Inelasticity Price P1 A relatively large increase in price results in only a small decrease in demand P2 D Q1 Q2 Quantity Relative Price Elasticity Price A relatively small decrease in price results in substantial increase in demand P1 P2 D Q1 Q2 Quantity Total Price Inelasticity Price D P1 P2 Q1,Q2 Quantity Total Price Elasticity Price P D Quantity Cross-Elasticity Relationship in elasticities between products Computer demand increase printer demand increase Beef prices increase, decreasing demand fish demand increase Know Your Costs Average cost Marginal cost Total cost Types of Costs Price Marginal cost Average cost Demand Marginal revenue Quantity Intersection of Marginal Cost and Marginal Revenue Cost and revenue MR Marginal cost = marginal revenue Cost less than revenue MC Cost greater than revenue Units produced and sold Review Define & discuss price Describe price interaction with the other “Ps” Analyze price’s role of in the economy Outline pricing strategy fundamentals Review relationship between price and organizational objectives Relate demand to price Overview demand & cost considerations on pricing Differentiate price elasticity, inelasticity, and crosselasticity
