kotler pom13e student 10

7/30/2019 Kotler POM13e Student 10

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Chapter 10 - slide 1Copyright 2009 Pearson Education, Inc.

Publishing as Prentice Hall

Chapter Ten

Pricing:

Understanding and Capturing

Customer Value


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Pricing ConceptsUnderstanding and

Capturing Customer Value

What Is a Price?

Customer Perceptions of Value

Company and Product Costs

Other Internal and External

Considerations Affecting Price

Decisions

Topic Outline


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Price is the amount of money charged for aproduct or service. It is the sum of all thevalues that consumers give up in order to

gain the benefits of having or using aproduct or service.

Price is the only element in the marketing mix

that produces revenue; all other elementsrepresent costs

What Is a Price?


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Factors to Consider When SettingPrices

Understanding how much value

consumers place on the benefits theyreceive from the product and setting a

price that captures that value



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Value-based pricinguses the buyers

perceptions of value, not the sellerscost, as the key to pricing. Price isconsidered before the marketingprogram is set.

Value-based pricing is customer driven

Cost-based pricing is product driven



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Factors to Consider WhenSetting Prices

Value-based pricing

Good-value pricing

Value-added pricing



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Copyright 2010 Pearson Education, Inc.



Good-value pricing offers the right

combination of quality and good service tofair price

Existing brands are being redesigned to offermore quality for a given price or the same

quality for less price







Everyday low pricing (EDLP) involves

charging a constant everyday low price withfew or no temporary price discounts

High-low pricing involves charging higherprices on an everyday basis but running

frequent promotions to lower prices

temporarily on selected items






Factors to ConsiderWhen Setting Prices

Value-added pricing attaches value-addedfeatures and services to differentiate offers,support higher prices, and build pricingpower

Pricing poweris the ability to escape pricecompetition and to justify higher prices andmargins without losing market share



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Cost-based pricing involves setting prices

based on the costs for producing,distributing, and selling the product plus a

fair rate of return for its effort and risk



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Chapter 10 - slide 11Copyright 2010 Pearson Education, Inc.Publishing as Prentice Hall


Cost-based pricing adds a standard markup to

the cost of the product



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Fixedcosts

Variablecosts

Totalcosts


Types of costs


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Fixed costs are the costs that do not vary with

production or sales level Rent

Heat

Interest Executive salaries



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Variable costs are the costs that vary with the

level of production Packaging

Raw materials



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Total costs are the sum of the fixed and

variable costs for any given level ofproduction

Average cost is the cost associated with a

given level of output



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Experience or learning curve is when

average cost falls as production

increases because fixed costs are

spread over more units

Costs as a Function of Production Experience


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Cost-plus pricing adds a standard markup

to the cost of the product

Benefits Sellers are certain about costs

Prices are similar in industry and price competition is

minimized

Consumers feel it is fair

Disadvantages Ignores demand and competitor prices

Cost-Plus Pricing


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Break-even pricing is the price at which total

costs are equal to total revenue and there isno profit

Target profit pricing is the price at which the

firm will break even or make the profit itsseeking

Break-Even Analysis and Target ProfitPricing


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Customer perceptions of value set the

upper limit for prices, and costs set thelower limit

Companies must consider internal and

external factors when setting prices

Other Internal and ExternalConsiderations


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Target costing starts with an ideal selling price

based on consumer value considerationsand then targets costs that will ensure that

the price is met



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Organizational considerations include:

Who should set the price

Who can influence the prices



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Before setting prices, the marketer must

understand the relationship between

price and demand for its products


The Market and Demand


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Pure competition

Monopolistic competition

Oligopolistic competition

Pure monopoly

Other Internal and ExternalConsideration

The Market and Demand


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The demand curve shows the number of unitsthe market will buy in a given period atdifferent prices

Normally, demand and price are inverselyrelated

Higher price = lower demand For prestige (luxury) goods, higher price can

equal higher demand when consumersperceive higher prices as higher quality



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Price elasticity of demand illustrates the response ofdemand to a change in price

Inelastic demand occurs when demand hardly changes when thereis a small change in price

Elastic demand occurs when demand changes greatly for a smallchange in price

Price elasticity of demand = % change in quantity demand

% change in price



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Comparison of offering in terms ofcustomer value

Strength of competitors

Competition pricing strategies Customer price sensitivity

Other Internal and External ConsiderationsCompetitor's Strategies


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Economic conditions

Resellers response to price

Government

Social concerns

Other Internal and ExternalConsideration


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All rights reserved. No part of this publication may be reproduced, stored in a

retrieval system, or transmitted, in any form or by any means, electronic,

mechanical, photocopying, recording, or otherwise, without the prior written

permission of the publisher. Printed in the United States of America.



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