Pricing Concepts
CHAPTER
19
Marketing
10
Lamb, Hair, McDaniel
Designed by
Eric Brengle
B-books, Ltd.
Copyright ©2009 by Cengage Learning Inc. All rights reserved
Prepared by
Amit Shah
Frostburg State University
1
LOI
The Importance of Price
To the seller...
Price is revenue
To the consumer...
Price is the cost
of something
Price allocates resources
in a free-market economy
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2
LOI
What Is Price?
Price
Price is that which is given up
in an exchange to acquire a
good or service.
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3
LOI
The Importance of Price to
Marketing Managers
Revenue
Profit
The price charged to
customers multiplied by the
number of units sold.
Revenue minus expenses.
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4
LO2
Pricing Objectives
Profit-Oriented
Sales-Oriented
Status Quo
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5
LO2
Profit-Oriented Pricing
Objectives
Profit-Oriented Pricing Objectives
Profit
Maximization
Satisfactory
Profits
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Target
Return on
Investment
6
LO2
Sales-Oriented Pricing
Objectives
Sales-Oriented Pricing Objectives
Market
Share
Sales
Maximization
http://www.target.com
http://www.walmart.com
http://www.jcpenney.com
Online
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7
LO2
Status Quo Pricing Objectives
Status Quo Pricing Objectives
Maintain
existing
prices
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Meet
competition’s
prices
8
LO3
The Demand Determinant of Price
Demand
Supply
The quantity of a product that
will be sold in the market at
various prices for a specified
period.
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
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9
The Demand Curve
LO3
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10
The Supply Curve
LO3
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11
LO3
How Demand and Supply Establish Price
Price
Equilibrium
The price at which demand
and supply are equal.
Elasticity
of Demand
Consumers’ responsiveness
or sensitivity to changes
in price.
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12
Price Equilibrium
LO3
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13
LO3
Elasticity of Demand
Elastic
Demand
Inelastic
Demand
Unitary
Elasticity

Consumers buy more or less
of a product when the
price changes.

An increase or decrease in
price will not significantly
affect demand.

An increase in sales exactly
offsets a decrease in prices,
and revenue is unchanged.
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14
LO3
Elasticity of Demand
Elasticity (E)
=
Percentage change in quantity
demanded of good A
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.
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15
LO3
Factors that Affect Elasticity of Demand
Availability of substitutes
Price relative to
purchasing power
Product durability
A product’s other uses
Rate of inflation
http://www.columbiahouse.com
Online
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16
LO5
The Cost Determinant of Price
Types of Costs
Variable
Cost
Fixed Cost
Varies with changes
in level of output
Does not change
as level of output changes
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17
Break-Even Pricing
Break-Even
Quantity
Fixed cost
Contribution
LO5
=
=
Total fixed costs
Fixed cost contribution
Price - Avg. Variable Cost
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18
LO6
Other Determinants of Price
Stages of the
Product Life Cycle
Competition
Distribution Strategy
Promotion Strategy
Perceived Quality
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19
LO6
Stages in the Product Life Cycle
Introductory
Stage
Growth
Stage
Maturity
Stage
$
$
$
High
Stable
Decrease
Decline
Stage
$
Decrease
Stable
High
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20
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
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21
LO6
The Impact of the Internet
Product selection
Second opinions from expert sites
Shopping bots
Internet auctions
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22
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
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23
LO6 The
Relationship of Price to Quality
Prestige Pricing
Charging a high price to help
promote a high-quality image.
http://www.vivre.com
http://www.ashford.com
Online
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24