BA 315 CHAPTER 9PRICING LINDELL PHILLIP CHEW
Pricing programs are the plans' that a
firm develops that
indicate what level of price should
be charged in order to implement
the marketing strategy
The framework for selecting
pricing programs includes six
elements:
1,2
,3,4,5,6
• 1. Establish the pricing objective.
• 2. Analyze the price elasticity of
demand.
• 3. Identify key competitive factors
impacting price competition.
• 4. Estimate the relationship between
price, changes and volume, cost, and
profit changes.
• 5. Evaluate the potential impact on any
product line substitutes or
complements.
• 6. Determine if any legal limitations on
pricing decisions exist or if any
modifications are necessary for
international
The purpose of any pricing
program is to support the
marketing
strategy that has been developed
for the product or product line
• PRIMARY DEMAND BASED
• SELECTIVE DEMAND BASED
• PRODUCT LINE BASED
OBJECTIVES, OBJECTIVES, OBJECTIVES
Primary demand based
objectives are selected if the
firm believes that price can
be used to increase the
number of users or increase
the rate of purchase.
Selective-demand-based
objectives are employed when a
firm wishes to retain its
customer base or wishes to use
price to neutralize the effect of
competitors' prices on market
share.
Product-line-based objectives
are used when a firm desires
quality distinctions among
substitutes or expansion of
product range among existing
customers if they are
complements.
Primary-demand-based objectives are selected if the firm believes
that price can be used to increase the number of users or
increase the rate of purchase.
Selective-demand-based objectives are employed when a
firm wishes to retain its customer base or wishes to use
price to neutralize the effect of competitors' prices on
market share.
Product-line-based objectives are used when a firm desires
quality distinctions among substitutes or expansion of
product range among existing customers if they are
complements.
price-elasticity of demand
• The price-elasticity of demand
is measured by the percentage
change in quantity divided by
the percentage change in price.
Price-elasticity measures the
impact of price change on total
revenue.
A. Market elasticity indicated how
total primary demand responds to a
change in the average prices of all
competitors.
B. Company elasticity indicates the
willingness of customers to shift
brands or suppliers on the basis of
price.
C. Market and company demandelasticity in some industries or
markets is the sum of demand from
several segments.
Competitors' reactions
to a price change must
be considered
regardless of whether a
manager is concerned
with market or
company elasticity.
Cost factors must also be considered
in making pricing decisions.
A. With the cost-plus approach, the price is determined
by taking the cost per unit and adding a dollar or
percentage-target-contribution margin.
B. With the full-cost approach, all costs are considered
in setting the minimum price.
C. With the variable-cost approach, the price is set
above the variable cost per unit.
Pricing programs may be selected after pricing
objectives and the elasticity of demand have been
established and after the competitive situation and cost
structure have been
assessed.
• Penetration pricing involves setting a price below
competitive levels to stimulate an increase in
demand.
•
• Parity pricing involves setting a price at or near
competitive levels.
•
• Premium pricing involves setting a price above
competitive levels.
•
Pricing decisions for one product can influence sales of
other products in the firm's mix. Price cross-elasticities
are the relationships that exist when a change in the
price of one product influences the sales volume of the
second product.
A. Substitutes exist when a firm markets a line of
products or brands, each of which serves the needs of
slightly different target segments.
1. Anchoring is the effect that a price stimulus 11 on the
reference points that buyers use to assess prices.
2. Subjective price scales are the psychological scales on
which buyers code price informati
Complementary products are those
that experience a sales increase
(decrease) when related products
experience a price cut (increase).
Managers can take advantage of
complementary relationships
through price bundling and using
price leaders.
LPC SAYS, “MOLTRIN AND
RUFEN WILL BE ON EXAM
TWO”
•
SO WILL SOUTHWEST AIRLINES
•
ARC ELASTICITY!!!!
The End
LPC1@umsl.edu