Principles of Marketing

1. Principles of Marketing Lecture-24

2. Summaryof Lecture-23

5. Product

6. Today’s Topics

8. What is Price?

9. Rent Fee Rate Commission Tuition Fare Toll Premium Price Has Many Names • Bribe • Salary • Wage • Interest • Tax

10. Definition

11. Price • The amount of money charged for a product or service, or the sum of the values that consumers exchange for the benefits of having or using the product or service.

12. Price is the sum of all the values that consumers exchange for the benefits of having or using the product or service. • Price is the only element in the marketing mix that produces revenues; all others represent costs.

13. Dynamic Pricing Charging different prices depending on individual customers and situations.

14. Factors Affecting Price Decisions

15. Internal Factors Pricing Decisions Positioning Objectives Target Market External Factors

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

17. Internal Factors Affecting Pricing Decisions

18. Marketing Objectives Marketing-Mix Strategy Costs Organizational Considerations

19. Marketing Objectives that Affect Pricing Decisions

20. Survival Low Prices to Cover Variable Costs and Some Fixed Costs to Stay in Business. Current Profit Maximization Choose the Price that Produces the Maximum Current Profit, Cash Flow or ROI. Marketing Objectives Market Share Leadership Low as Possible Prices to Become the Market Share Leader. Product Quality Leadership High Prices to Cover Higher Performance Quality

21. Marketing Mix Variables that Affect Pricing Decisions

22. Product Design and Quality Marketing-Mix Strategy Non-Price Factors Distribution Promotion

23. Pricing must be carefully coordinated with the other marketing mix elements Target costing is often used to support product positioning strategies based on price

24. Costs

25. Set the floor for the price • Cover total costs - fixed plus variable costs • Fixed costs • do not vary with production volume • Variable costs • vary directly with production volume

26. Types of Cost Factors that Affect Pricing Decisions

27. Total Costs • Sum of the Fixed and Variable Costs for a Given • Level of Production Variable Costs Costs that do vary directly with the level of production. Raw materials Fixed Costs (Overhead) Costs that don’t vary with sales or production levels. Executive Salaries Rent

28. Fixed Costs Rent Depreciation Manager’s salaries Property taxes Insurance

29. Fixed Costs Variable Costs Raw materials Component parts Hourly wages Packaging & freight Sales commissions Rent Depreciation Manager’s salaries Property taxes Insurance

30. How costs vary at different production levels will influence price setting

31. Organizational considerations

32. Who sets the price? Small companies: CEO or top management Large companies: Divisional or product line managers Price negotiation is common in industrial settings Some industries have pricing departments

33. External factors affecting Pricing decisions

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

35. The Market and Demand factors that affect Pricing decisions

36. PureCompetition Many Buyers and Sellers Who Have Little Affect on the Price. MonopolisticCompetition Many Buyers and Sellers Trading Over a Range of Prices. Different Types of Markets Oligopolistic Competition Few Sellers Each Sensitive to Other’s Pricing/ Marketing Strategies Pure Monopoly Single Seller

37. Consumer Perception of Price and Value Pricing decision must be buyer/ consumer oriented

38. Price-Demand Relationships

39. The Demand Determinant of Price D Price D Quantity

40. Demand Curves

42. Price Elasticity of Demand How quantity demanded responds to price changes

43. A. Inelastic Demand - Demand Hardly Changes With a Small Change in Price. Price P2 P1 Q2 Q1 Quantity Demanded per Period B. Elastic Demand - Demand Changes Greatly With a Small Change in Price. Price P’2 P’1 Q2 Q1 Quantity Demanded per Period

44. Elastic demand • price changes affect demand • total revenue falls when price increases • total revenue increases when price falls • Inelastic demand • price changes do not affect demand • total revenue increases when price increases • total revenue falls when price falls

45. Competitors’ costs, prices, and offers

46. Consider competitors’ costs, prices, and possible reactions when developing a pricing strategy Pricing strategy influences the nature of competition Low-price low-margin strategies inhibit competition High-price high-margin strategies attract competition Benchmarking costs against the competition is recommended

47. Other environmental elements

48. Economic conditions Affect production costs Affect buyer perceptions of price and value Reseller reactions to prices must be considered Government may restrict or limit pricing options Social considerations may be taken into account

49. Enough for today. . .

50. Summary