Chapter 19
Pricing Concepts
What is Price?
 The value attached to the product or service
 Value: the “worth” based on perceived benefits
 What is given up in exchange for the good or
service
 Currency; credit
 Barter: exchange of products for something other
than money
The Importance of Price to
Marketing Managers
Revenue
Profit
The price charged to
customers multiplied by the
number of units sold.
Revenue minus expenses.
Fundamentals of Pricing
 Determine pricing




objectives
Know the importance of
price to the target
market
Know your demand
Understand your costs
Determine the pricing
strategy
Pricing Objectives
 Profit Orientation
 Sales orientation
 Status Quo orientation
 Societal orientation
Profit Oriented Pricing
Objectives
 Profit Maximization
 Satisfactory profits
 Target Return on
Investment
Sales Oriented Pricing
Objectives
 Market Share
 Sales Maximization
Status Quo Pricing Objectives
 Maintain Existing
Prices
 Meet Competition’s
prices
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.
The Demand Curve
The Supply Curve
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.
Price Equilibrium
Elasticity of Demand
Elastic
Demand

Consumers buy more or less
of a product when the
price changes.
Inelastic
Demand

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.
Unitary
Elasticity
Evaluating a Customer’s Price
Sensitivity
 Are there substitute ways of meeting a need?
 Is it easy to compare prices?
 Who pays the bill?
 How great is the total expenditure?
 How significant is the end benefit?
 Is there already a sunk investment related to the
purchase?
Yield management Systems
 A technique for
adjusting prices that
uses complex
mathematical software
to profitably fill
unused capacity
Yield Management Systems
 Options include:
 Discounting early purchases
 Limiting early sales at discounted prices
 Overbooking capacity
The Cost Determinant of Price
Types of Costs
Variable
Cost
Varies with changes
in level of output
Fixed Cost
Does not change
as level of output changes
The Cost Determinant of Price
Markup pricing
Methods
Used to
Set Prices
Keystoning
Profit Maximization
Pricing
Break-Even
Pricing
Break-Even Pricing
Other Determinants of Price
 Stage of the product life cycle
 Competition
 Distribution Strategy
 Promotion Strategy
 Perceived Quality
The Impact of the Internet
 Product Selection
 Shopping Bots
 Internet Auctions