Principles of Marketing - Pricing Lecture Notes PDF

Principals of Marketing Lecture: Pricing Slide 10-1 WHERE ARE WE NOW? Slide 10-2  NATURE AND IMPORTANCE OF PRICE PRICE AS AN INDICATOR OF VALUE Value...

Principals of Marketing Lecture: Pricing Slide 10-1 WHERE ARE WE NOW? Slide 10-2  NATURE AND IMPORTANCE OF PRICE PRICE AS AN INDICATOR OF VALUE Value  Value Value-Pricing  Value-Pricing Slide 10-3 advance selling Slide 10-4 probabilistic selling Slide 10-5  NATURE AND IMPORTANCE OF PRICE PRICE AS AN INDICATOR OF VALUE  Decoding Today’s Consumer Prices BOGO (Buy One Get One) Deal Slide 10-6  NATURE AND IMPORTANCE OF PRICE PRICE AS AN INDICATOR OF VALUE  Decoding Today’s Consumer Prices “77 & 7” Deal Slide 10-7  NATURE AND IMPORTANCE OF PRICE PRICE AS AN INDICATOR OF VALUE  Decoding Today’s Consumer Prices Q1: Which represents the biggest savings in total dollars? a. A markdown from $86.00 to $70.00 b. A markdown from $86.00 to $69.99 c. A markdown from $26.00 to $10.00 Slide 10-8  NATURE AND IMPORTANCE OF PRICE PRICE AS AN INDICATOR OF VALUE  Decoding Today’s Consumer Prices Q1: Which represents the biggest savings in total dollars? a. A markdown from $86.00 to $70.00=$16.00 b. A markdown from $86.00 to $69.99=$16.01 c. A markdown from $26.00 to $10.00=$16.00 Slide 10-9  NATURE AND IMPORTANCE OF PRICE PRICE AS AN INDICATOR OF VALUE  Decoding Today’s Consumer Prices Q2: Which represents the biggest percentage off a $2,000 item? a. 50% off b. 25% off, then another 25% off the reduced price c. 20% off, then another 20% off the reduced price, then 20% off the twice-reduced price Slide 10-10  NATURE AND IMPORTANCE OF PRICE PRICE AS AN INDICATOR OF VALUE  Decoding Today’s Consumer Prices Q3: On a $40 pair of pants, which offer will yield the best discount? a. Buy one, get 50% off the second b. $20 off all purchases of $60 or more c. A markdown of $10.00 on the pants Slide 10-11  NATURE AND IMPORTANCE OF PRICE PRICE IN THE MARKETING MIX Profit Equation  Profit Equation Profit = Total Revenue – Total Cost Profit = (Unit Price * Quantity Sold) - (Fixed Cost + Variable Cost) Slide 10-12  IDENTIFYING PRICING OBJECTIVES Pricing Objectives  Pricing Objectives Profit ▪ Managing for Long-Run Profits ▪ Managing for Current Profit Slide 10-13  IDENTIFYING PRICING OBJECTIVES Pricing Objectives  Pricing Objectives Sales ($) Market Share Social Responsibility Slide 10-14  IDENTIFYING PRICING CONSTRAINTS Pricing Constraints  Pricing Constraints Demand for the Product Class (Cars), Product Group (SUV), and Brand (Kia) Newness of the Product: Stage in the Product Life Cycle Slide 10-15  IDENTIFYING PRICING CONSTRAINTS Pricing Constraints  Pricing Constraints Cost of Producing and Marketing the Product Slide 10-16  IDENTIFYING PRICING CONSTRAINTS Pricing Constraints  Pricing Constraints Type of Competitive Market ▪ Pure Competition ▪ Monopolistic Competition ▪ Oligopoly ▪ Monopoly Slide 10-17 Pricing, product, and advertising strategies available to firms in four types of competitive markets Slide 10-18  ESTIMATE DEMAND AND REVENUE ESTIMATING DEMAND Demand Curve  Demand Curve Demand Factors  Demand Factors Consumer Tastes Availability of Similar Products Consumer Income and Price Slide 10-19 Demand curves for Red Baron frozen cheese pizza showing the effect on annual sales by a change in price caused by (A) a movement along the demand curve and (B) a shift of the demand curve Slide 10-20  Demand curves for Red Baron frozen cheese pizza showing the effect on annual sales by a change in price caused by a movement along the demand curve Slide 10-21 Demand curves for Red Baron frozen cheese pizza showing the effect on annual sales by a change in price caused by a shift of the demand curve Slide 10-22  ESTIMATING REVENUE Total Revenue (TR)  Total Revenue (TR) Average Revenue (AR)  Average Revenue (AR) Marginal Revenue (MR)  Marginal Revenue (MR) Slide 10-23 Fundamental revenue concepts Slide 10-24  THE IMPORTANCE OF CONTROLLING COSTS Total Cost (TC)  Total Cost (TC) Fixed Cost (FC)  Fixed Cost (FC) Variable Cost (VC)  Variable Cost (VC) Marginal Cost (MC)  Marginal Cost (MC) Slide 10-25  Four approaches for selecting approximate prices Demand-oriented Approaches  Demand-oriented Approaches Cost-oriented Approaches  Cost-oriented Approaches Profit-oriented Approaches  Profit-oriented Approaches Competition-oriented Approaches  Competition-oriented Approaches Slide 10-26  SELECT AN APPROPRIATE PRICE LEVEL DEMAND-ORIENTED PRICING APPROACHES Skimming Pricing Penetration Pricing  Skimming  Penetration Pricing Pricing Prestige Pricing  Prestige Pricing Slide 10-27  SELECT AN APPROPRIATE PRICE LEVEL DEMAND-ORIENTED PRICING APPROACHES Bundle Pricing Odd-Even Pricing  Odd-Even  Bundle Pricing Pricing Yield Mgmt Pricing  Yield Mgmt Pricing Slide 10-28  SELECT AN APPROPRIATE PRICE LEVEL COST-ORIENTED PRICING APPROACHES Cost Plus Pricing  Cost Plus Pricing Cost-plus percentage-of-cost pricing. Cost-plus fixed-fee pricing. Slide 10-29 Markups for a manufacturer, wholesaler, and retailer on a home appliance sold to consumers for $100 Slide 10-30  SELECT AN APPROPRIATE PRICE LEVEL PROFIT-ORIENTED PRICING APPROACHES Target Profit Pricing  Target Profit Pricing Profit = Total Revenue – Total Cost Profit = (P × Q) – [FC + (UVC × Q)] $7,000 = (P × 1,000) – [$26,000 + ($22 × 1,000)] $7,000 = 1,000P – $48,000 1,000P = $55,000 P = $55 Slide 10-31  SELECT AN APPROPRIATE PRICE LEVEL PROFIT-ORIENTED PRICING APPROACHES Target Return- on-Sales Pricing  Target Return- on-Sales Pricing 20%=(TR-TC)/TR Slide 10-32  SELECT AN APPROPRIATE PRICE LEVEL COMPETITION-ORIENTED PRICING APPROACHES Customary Pricing  Customary Pricing Above-, At-, or Below-Market Pricing  Above-, At-, or Below-Market Pricing Loss-Leader Pricing  Loss-Leader Pricing Slide 10-33  SET THE LIST OR QUOTED PRICE ABOUT TIME Fixed-Price Policy  Fixed-Price Policy Dynamic Pricing Policy  Dynamic Pricing Policy Clickstream Slide 10-34  MAKE SPECIAL ADJUSTMENTS TO THE LIST OR QUOTED PRICE DISCOUNTS Quantity Discounts  Quantity Discounts Slide 10-35  MAKE SPECIAL ADJUSTMENTS TO THE LIST OR QUOTED PRICE ALLOWANCES  Trade-In Allowances Slide 10-36  MAKE SPECIAL ADJUSTMENTS TO THE LIST OR QUOTED PRICE LEGAL & REGULATORY ASPECTS OF PRICING Price Fixing  Price Fixing Price Discrimination  Price Discrimination Slide 10-37  MAKE SPECIAL ADJUSTMENTS TO THE LIST OR QUOTED PRICE LEGAL & REGULATORY ASPECTS OF PRICING Predatory Pricing  Predatory Pricing  Deceptive Pricing Slide 10-38 Five most common deceptive pricing practices Slide 10-39 Next Class Placement Slide 10-40