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Understanding Pricing Concepts: A Comprehensive Guide for Marketing Managers

Learn about pricing as revenue, cost, and resource allocator. Explore profit-oriented and sales-oriented pricing objectives, price elasticity, demand and supply curves, factors affecting elasticity, cost determinants, and the impact of the internet on pricing strategies.

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Understanding Pricing Concepts: A Comprehensive Guide for Marketing Managers

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  1. 10 MarketingLamb, Hair, McDaniel Designed by Eric Brengle B-books, Ltd. Prepared by Amit Shah Frostburg State University Pricing Concepts CHAPTER 19

  2. To the seller...Price is revenue To the consumer...Price is the cost of something LOI The Importance of Price Price allocates resources in a free-market economy

  3. Price What Is Price? LOI Price is that which is given up in an exchange to acquire a good or service.

  4. Revenue The price charged to customers multiplied by the number of units sold. Profit Revenue minus expenses. The Importance of Price to Marketing Managers LOI

  5. Profit-Oriented Sales-Oriented Status Quo LO2 Pricing Objectives

  6. Profit-Oriented Pricing Objectives LO2 Profit Maximization SatisfactoryProfits Target Return on Investment Profit-Oriented Pricing Objectives

  7. Sales-Oriented Pricing Objectives LO2 Market Share Sales Maximization http://www.target.com http://www.walmart.com http://www.jcpenney.com Online Sales-Oriented Pricing Objectives

  8. LO2 Status Quo Pricing Objectives Maintain existing prices Meet competition’s prices Status Quo Pricing Objectives

  9. 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 specific period. http://www.ubid.com Online The Demand Determinant of Price LO3

  10. The Demand Curve LO3

  11. The Supply Curve LO3

  12. Price Equilibrium The price at which demand and supply are equal. Elasticity of Demand Consumers’ responsiveness or sensitivity to changes in price. How Demand and Supply Establish Price LO3

  13. Price Equilibrium LO3

  14. LO3 Elasticity of Demand Elastic Demand • Consumers buy more or lessof a product when the price changes. InelasticDemand • An increase or decrease in price will not significantly affect demand. UnitaryElasticity • An increase in sales exactly offsets a decrease in prices, and revenue is unchanged.

  15. LO3 Percentage change in quantity demanded of good A Elasticity (E) = Percentage change in price of good A If E is greater than 1, demand is elastic. If E is less than 1, demand is inelastic. If E is equal to 1, demand is unitary. Elasticity of Demand

  16. http://www.columbiahouse.com Online Factors that Affect Elasticity of Demand LO3 Availability of substitutes Price relative to purchasing power Product durability A product’s other uses Rate of inflation

  17. Types of Costs Variable Cost Fixed Cost Varies with changes in level of output Does not change as level of output changes LO5 The Cost Determinant of Price

  18. Break-Even Quantity Fixed cost Contribution Total fixed costs Fixed cost contribution Price - Avg. Variable Cost = = Break-Even Pricing LO5

  19. Stages of the Product Life Cycle Competition Distribution Strategy Promotion Strategy Perceived Quality LO6 Other Determinants of Price

  20. Introductory Stage Growth Stage Maturity Stage Decline Stage $ High $ Stable $ Decrease Stages in the Product Life Cycle LO6 $ DecreaseStableHigh

  21. LO6 The Competition • High prices may induce firms to enter the market • Competition can lead to price wars • Global competition may force firms to lower prices

  22. Product selection Second opinions from expert sites Shopping bots Internet auctions The Impact of the Internet LO6

  23. LO6 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 low-price dealer

  24. http://www.vivre.com http://www.ashford.com Online The Relationship of Price to Quality LO6 Prestige Pricing Charging a high price to help promote a high-quality image.

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