Principles of marketing: Lecture 24
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MGT301
Principles of Marketing
Lecture24
Summary
of
Lecture23
Product
Today’s Topics
What is Price?
Price Has Many Names
Rent
Tuition
Bribe
Fee
Fare
Salary
Rate
Toll
Wage
Commission
Premium
Interest
Tax
Price
Definition
– The amount of money charged for a product or service, or
the sum of the values that consumers exchange for the
benefits of having or using the product or service.
Price is the sum of all the values that consumers exchange for
the benefits of having or using the product or service.
Price is the only element in the marketing mix that produces
revenues; all others represent costs.
Dynamic Pricing
Charging different prices depending on individual customers
and situations.
Factors Affecting Price Decisions
Internal
Internal Factors
Factors
Positioning
Objectives
Pricing
Pricing
Decisions
Decisions
External
External Factors
Factors
Target
Market
Internal
Internal
Factors
Factors
External
External
Factors
Factors
Nature
Nature of
of the
the
market
Marketing
market and
and
Marketing
Pricing
Objectives
demand
Objectives
Pricing demand
Decisions
Decisions
Competition
Marketing
Mix
Competition
Marketing Mix
Strategy
Strategy
Other
Other
environmental
environmental
Costs
Costs
factors
(economy,
factors
(economy,
Organizational
Organizational
resellers,
resellers,
considerations
considerations
government)
government)
Internal
Factors
Affecting
Pricing
Decisions
Marketing
Objectives
Marketing-Mix
Strategy
Costs
Organizational
Considerations
Marketing Objectives that Affect Pricing
Decisions
Survival
Survival
Low
Low Prices
Prices to
to Cover
Cover Variable
Variable Costs
Costs and
and
Some
Some Fixed
Fixed Costs
Costs to
to Stay
Stay in
in Business.
Business.
Current
Current Profit
Profit Maximization
Maximization
Marketing
Marketing
Objectives
Objectives
Choose
Choose the
the Price
Price that
that Produces
Produces the
the
Maximum
Maximum Current
Current Profit,
Profit, Cash
Cash Flow
Flow or
or ROI.
ROI.
Market
Market Share
Share Leadership
Leadership
Low
Low as
as Possible
Possible Prices
Prices to
to Become
Become
the
the Market
Market Share
Share Leader.
Leader.
Product
Product Quality
Quality Leadership
Leadership
High
High Prices
Prices to
to Cover
Cover Higher
Higher
Performance
Performance Quality
Quality
Marketing Mix Variables that Affect Pricing
Decisions
Product
Product Design
Design
and
and Quality
Quality
Non-Price
Non-Price
Factors
Factors
Marketing-Mix
Strategy
Promotion
Promotion
Distribution
Distribution
Pricing must be carefully coordinated with the other
marketing mix elements
Target costing is often used to support product positioning
strategies based on price
Costs
Set the floor for the price
Cover total costs fixed plus variable costs
Fixed costs
– do not vary with production volume
Variable costs
– vary directly with production volume
Types of Cost Factors that Affect Pricing
Decisions
Total
TotalCosts
Costs
Sum
Sumof
ofthe
theFixed
Fixedand
andVariable
VariableCosts
Costsfor
foraaGiven
Given
Level
Levelof
ofProduction
Production
Variable
VariableCosts
Costs
Fixed
FixedCosts
Costs
(Overhead)
(Overhead)
Costs
Coststhat
thatdon’t
don’t
vary
varywith
withsales
salesor
or
production
productionlevels.
levels.
Executive
ExecutiveSalaries
Salaries
Rent
Rent
Costs
Coststhat
thatdo
dovary
vary
directly
directlywith
withthe
the
level
levelof
ofproduction.
production.
Raw
Rawmaterials
materials
Fixed Costs
Rent
Depreciation
Manager’s salaries
Property taxes
Insurance
Fixed Costs
Variable Costs
Rent
Raw materials
Depreciation
Component parts
Manager’s salaries
Hourly wages
Property taxes
Packaging & freight
Insurance
Sales commissions
How costs vary at different production levels will influence
price setting
Organizational considerations
Who sets the price?
– Small companies: CEO or top management
– Large companies: Divisional or product line managers
Price negotiation is common in industrial settings
Some industries have pricing departments
External factors affecting Pricing decisions
Market and
Demand
Competitors’ Costs,
Prices, and Offers
Other External Factors
Economic Conditions
Reseller Needs
Government Actions
Social Concerns
