10-110-1

Chapter 10Chapter 10

Pricing Considerations

and Approaches

10-210-2

Factors to Consider When Setting PricesFactors to Consider When Setting Prices

Internal FactorsInternal Factors

PricingDecisions

PricingDecisions

External FactorsExternal Factors

Price is the Amount of Money Charged for a Product or Service.

10-310-3Internal Factors Affecting PricingDecisionsInternal Factors Affecting PricingDecisions

Marketing Objectives

Marketing-MixStrategy

Costs

OrganizationalConsiderations

10-410-4External Factors Affecting PricingDecisionsExternal Factors Affecting PricingDecisions

Market andDemand

Competitors’ Costs, Prices, and Offers

Other External FactorsEconomic Conditions

Reseller NeedsGovernment Actions

Social Concerns

10-510-5Market and Demand Factors that

Affect Pricing Decisions

Market and Demand Factors that

Affect Pricing Decisions Pure CompetitionPure CompetitionMany Buyers and Sellers WhoHave Little Effect on the Price.

Pure CompetitionPure CompetitionMany Buyers and Sellers WhoHave Little Effect on the Price.

Monopolistic CompetitionMonopolistic CompetitionMany Buyers and Sellers Who Trade Over a Range of Prices.

Monopolistic CompetitionMonopolistic CompetitionMany Buyers and Sellers Who Trade Over a Range of Prices.

Oligopolistic CompetitionFew Sellers Who Are Sensitive to EachOther’s Pricing/ Marketing Strategies

Oligopolistic CompetitionFew Sellers Who Are Sensitive to EachOther’s Pricing/ Marketing Strategies

Pure MonopolySingle Seller

Pure MonopolySingle Seller

Pricing in Different Types of MarketsPricing in Different Types of Markets

10-610-6Price Elasticity of DemandPrice Elasticity of Demand

Pri

ce

Quantity Demanded per Period

A. Inelastic Demand - Demand Hardly Changes Witha Small Change in Price.

P2

P1

Q1Q2

Pri

ce

Quantity Demanded per Period

P’2

P’1

Q1Q2

B. Elastic Demand -Demand Changes Greatly Witha Small Change in Price.

10-710-7

MinimizesPrice

Competition

MinimizesPrice

Competition

What is Cost-Plus Pricing and Why is it Popular?What is Cost-Plus Pricing and Why is it Popular?

PerceivedFairness to

Both Buyersand Sellers

PerceivedFairness to

Both Buyersand Sellers

Sellers Are MoreCertain AboutCosts Than

Demand

Sellers Are MoreCertain AboutCosts Than

Demand

Adding a Standard Markup to the Cost of the Product.

10-810-8

Breakeven Analysis or Target Profit

Pricing

Breakeven Analysis or Target Profit

Pricing

2

4

6

8

10

12

200 400 600 800 1,000

Total Revenue

Total Cost

Fixed Cost

Target Profit($2 million)

Sales Volume in Units (thousands)

Co

st

in D

olla

rs (

mill

ion

s)

Tries to Determine the Price at Which a Firm Will Break Even or Make a Target Profit

0

10-910-9Cost-Based Vs. Value-Based PricingCost-Based Vs. Value-Based Pricing

ProductProduct

CostCost

PricePrice

ValueValue

CustomersCustomers

CustomerCustomer

ValueValue

PricePrice

CostCost

ProductProduct

Cost-Based Pricing Value-Based Pricing