Internal Factors External Factors Pricing Decisions

Factors Affecting Price Decisions
Internal Factors
Marketing Objectives Marketing Mix Strategy Costs Organizational considerations
External Factors
Pricing Decisions
Nature of the market and demand Competition Other environmental factors (economy, resellers, government)
Internal Factors Affecting Pricing Decisions: Marketing Objectives

Survival Low Prices to Cover Variable Costs and Some Fixed Costs to Stay in Business.
Marketing Objectives
Current Profit Maximization Choose the Price that Produces the Maximum Current Profit, Etc.
Market Share Leadership Low as Possible Prices to Become the Market Share Leader. Product Quality Leadership High Prices to Cover Higher Performance Quality and R & D.
Internal Factors Affecting Pricing Decisions: Marketing Mix
Product Design
Nonprice Positions
Price
Distribution
Promotion
External Factors Affecting Pricing Decisions

Market and Demand Competitors Costs, Prices, and Offers Other External Factors
Competitor Costs
This ad by LCI International accuses its competitors of using unfair practices in pricing, hiding fees incurred by rounding up. Why is LCI focusing on this practice? Hidden fees, defined as cramming by the FCC, are the number one source of billing complaints among long-distance customers.
Economic Conditions Reseller Needs Government Actions Social Concerns
Market and Demand Factors Affecting Pricing Decisions

Pricing in Different Types of Markets
Pure Competition
Many Buyers and Sellers Who Have Little Effect on the Price
Pure Monopoly
Single Seller
Many Buyers and Sellers Who Trade Over a Range of Prices
Monopolistic Competition
Few Sellers Who Are Sensitive to Each Others Pricing/ Marketing Strategies
Oligopolistic Competition
Major Considerations in Setting Price (Fig. 10.5)
Cost-Based Pricing
Certainty About Costs
Pricing is Simplified
Price Competition Is Minimized
Cost-Plus Ethical Pricing is an Approach That Adds a Standard Markup to the Attitudes Costof the of Others Product.
Unexpected Situational Factors
Simplest Pricing Method
Much Fairer to Buyers & Sellers
Ignores Current Demand & Competition
Cost-Based Versus Value-Based Pricing

Cost-Based Pricing Value-Based Pricing
Product Cost
Price
Customer Value
Price
Value
Customers
Cost
Product
Competition-Based Pricing
Setting Prices
Company Sets Prices Based on What Competitors Are Charging.
Going-Rate
? ?
Company Sets Prices Based on What They Think Competitors Will Charge.
Sealed-Bid
New Product Pricing Strategies

Market Skimming
Setting a High Price for a New Product to Skim Maximum Revenues from the Target Market. Results in Fewer, But More Profitable Sales.
Use Under These Conditions:
Products Quality and Image Must Support Its Higher Price. Costs Cant be so High that They Cancel the Advantage of Charging More. Competitors Shouldnt be Able to Enter Market Easily and Undercut the High Price.
New Product Pricing Strategies

Use Under These Conditions:
Market Penetration
Setting a Low Price for a New Product in Order to Penetrate the Market Quickly and Deeply. Attract a Large Number of Buyers and Win a Larger Market Share.
Market Must be Highly Price-Sensitive so a Low Price Produces More Market Growth. Production/ Distribution Costs Must Fall as Sales Volume Increases. Must Keep Out Competition & Maintain Its Low Price Position or Benefits May Only be Temporary.
Product Mix-Pricing Strategies:

Product Line Pricing
Involves setting price steps between various products in a product line based on:
Cost differences between products, Customer evaluations of different features, and competitors prices.
Product Mix- Pricing Strategies

Optional-Product
Pricing optional or accessory products sold with the main product. i.e camera bag.
Captive-Product
Pricing products that must be used with the main product. i.e. film.
Product Mix- Pricing Strategies

By-Product
Pricing low-value by-products to get rid of them and make the main products price more competitive. i.e. sawdust, Zoo Doo
Product-Bundling
Combining several products and offering the bundle at a reduced price. i.e. theater season tickets.
Discount and Allowance Pricing
Adjusting Basic Price to Reward Customers For Certain Responses

Cash Discount Seasonal Discount
Quantity Discount Functional Discount
Trade-In Allowance Promotional Allowance
Psychological Pricing
Considers the psychology of prices and not simply the economics. Customers use price less when they can judge quality of a product. Price becomes an important quality signal when customers cant judge quality; price is used to say something about a product.
Promotional Pricing
Loss Leaders Special-Event Pricing
Cash Rebates Low-Interest Financing Temporarily Pricing Products Below List Price to Increase Short-Term Sales Through:
Longer Warranties
Free Merchandise
Discounts

Internal Factors External Factors Pricing Decisions

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Internal Factors External Factors Pricing Decisions

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Factors Affecting Price Decisions

Internal Factors Affecting Pricing Decisions: Marketing Objectives

Internal Factors Affecting Pricing Decisions: Marketing Mix

External Factors Affecting Pricing Decisions

Economic Conditions Reseller Needs Government Actions Social Concerns

Market and Demand Factors Affecting Pricing Decisions

Many Buyers and Sellers Who Trade Over a Range of Prices

Major Considerations in Setting Price (Fig. 10.5)

Price Competition Is Minimized

Simplest Pricing Method

Much Fairer to Buyers & Sellers

Ignores Current Demand & Competition

Cost-Based Versus Value-Based Pricing

Company Sets Prices Based on What Competitors Are Charging.

New Product Pricing Strategies

Use Under These Conditions:

New Product Pricing Strategies

Product Mix-Pricing Strategies:

Product Mix- Pricing Strategies

Product Mix- Pricing Strategies

Discount and Allowance Pricing

Adjusting Basic Price to Reward Customers For Certain Responses

Quantity Discount Functional Discount

Trade-In Allowance Promotional Allowance

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