Chapter Ten

Pricing:
Understanding and
Capturing Customer Value
Chapter 10- slide 1

What Is a Price?

Price is the amount of money

charged for a product or service.
It is the sum of all the values
that consumers give up in order
to gain the benefits of having or
using a product or service.

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Publishing as Prentice Hall

Chapter 10- slide 2

What Is a Price?
Price is the only element in the
marketing mix that produces
revenue; all other elements
represent costs

Copyright 2010 Pearson Education, Inc.

Publishing as Prentice Hall

Chapter 10- slide 3

Factors to Consider When

Setting Prices
Customer Perceptions of Value

Copyright 2010 Pearson Education, Inc.

Publishing as Prentice Hall

Chapter 10- slide 4

Copyright 2010 Pearson Education, Inc.

Publishing as Prentice Hall

Chapter 10- slide 5

Factors
Factorsaffecting
affectingpricing
pricing decisions:
decisions:
Marketing
Marketing objectives
objectives

Marketing
Objectives

Survival
Low Prices to Cover Variable Costs
and
SomeProfit
Fixed Costs
to Stay in
Current
Maximization
Business.
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.

Copyright 2010 Pearson Education, Inc.

Publishing as Prentice Hall

Chapter 10- slide 6

Factors
Factorsaffecting
affectingpricing
pricing decisions:
decisions:
Marketing
Marketingmix
mix

Product Design

Nonprice
Positions

Price

Distribution

Promotion
Copyright 2010 Pearson Education, Inc.
Publishing as Prentice Hall

Chapter 10- slide 7

Factors
Factorsaffecting
affectingpricing
pricing decisions:
decisions:
Cost
Cost factor
factor

Fixed Costs
(Overhead)

Variable Costs

Costs that dont

vary with sales or
production levels.

Costs that do vary

directly with the
level of production.

Executive Salaries, Rent

Raw materials

Total
Total Costs
Costs
Sum
Sum of
of the
the Fixed
Fixed and
and Variable
Variable Costs
Costs for
for aa Given
Given
Level
of
Production
Level
of
Production
Copyright 2010 Pearson Education, Inc.
Publishing as Prentice Hall

Chapter 10- slide 8

Copyright 2010 Pearson Education, Inc.

Publishing as Prentice Hall

Chapter 10- slide 9

External
ExternalFactors
Factorsaffecting
affecting pricing
pricingdecisions
decisions

Market and
Demand
Competitors Costs,
Prices, and Offers
Other External Factors
Economic Conditions
Reseller Needs
Government Actions
Social Concerns

Copyright 2010 Pearson Education, Inc.

Publishing as Prentice Hall

Chapter 10- slide 10

Market
Market&&Demand
DemandFactors
Factorsaffecting
affectingpricing
pricing
decisions
decisions

Pricing in Different Types of Markets

Pure
Pure Competition
Competition

Many
ManyBuyers
Buyersand
andSellers
Sellers
Who
WhoHave
HaveLittle
Little
Effect
Effecton
onthe
thePrice
Price

Monopolistic
Monopolistic
Competition
Competition

Pure
Pure Monopoly
Monopoly
Single
SingleSeller
Seller

Oligopolistic
Oligopolistic
Competition
Competition

Many
FewSellers
SellersWho
WhoAre
Are
ManyBuyers
Buyersand
andSellers
Sellers Few
Who
Sensitiveto
toEach
EachOthers
Others
WhoTrade
TradeOver
Overaa Sensitive
Pricing/
Range
Pricing/Marketing
Marketing
Rangeof
ofPrices
Prices
Copyright 2010 Pearson Education, Inc.
Publishing as Prentice Hall

Strategies
Strategies

Chapter 10- slide 11

Factors to Consider When

Setting Prices
Customer Perceptions of Value

Copyright 2010 Pearson Education, Inc.

Publishing as Prentice Hall

Chapter 10- slide 12

Factors to Consider When

Setting Prices
Customer Perceptions of Value

Value-based pricing uses the

buyers perceptions of value, not the
sellers cost, as the key to pricing.
Price is considered before the
marketing program is set.
Value-based pricing is customer
driven
Cost-based pricing is product driven
Copyright 2010 Pearson Education, Inc.
Publishing as Prentice Hall

Chapter 10- slide 13

Factors to Consider When

Setting Prices
Company and Product Costs

Cost-based pricing involves

setting prices based on the costs
for producing, distributing, and
selling the product plus a fair rate
of return for its effort and risk

Copyright 2010 Pearson Education, Inc.

Publishing as Prentice Hall

Chapter 10- slide 14

Cost-based
Cost-based Pricing
Pricing

Certainty
About Costs

Pricing is
Simplified

Price
Competition Is
Minimized
Much Fairer to
Buyers & Sellers

Cost-Plus
Pricing is an
Approach
That Adds a
Standard
Markup to the
Cost of the
Product.

Copyright 2010 Pearson Education, Inc.

Publishing as Prentice Hall

Simples
t Pricing
Method

Ignores
Current
Demand &
Competitio
n

Chapter 10- slide 15

Considerations in Setting Price

Copyright 2010 Pearson Education, Inc.

Publishing as Prentice Hall

Chapter 10- slide 16