Learning the basics about pricing products and how it affects the purchasing behavior of consumer and business buyer marketing.

1. Kotler, Armstrong
Principles of Marketing 4e- Chapter 10
PRICING CONSIDERATIONS AND
APPROACHES

2. Chapter Objectives
1. Explain the benefits of value-based pricing.
2. Discuss how marketing objectives, marketing-mix strategy and costs
and other company factors affect pricing decisions.
3. List and discuss factors outside the company that affect pricing
decisions.
4. Explain how price setting depends on consumer perceptions of price
and on the price-demand relationship.
5. Describe the major strategies for pricing new products.
6. Comprehend the way in which companies establish a set of prices that
maximises the profits from the total product mix.
7. Explain how companies adjust their prices to take into account
different types of customers and situations.

3. What is Price?
 Price is the amount of money charged for a product or
service, or the sum of values consumers exchange for the
benefits of having or using the product or service.
 Price is the only element of the marketing mix that produces
revenue; all other elements represent costs.
 A company does not usually set a single price, but rather a
pricing structure that covers different items in its product line.
 The company adjusts product prices to reflect changing costs
and demand and to account for variations in buyers and
situations.

4. Pricing For Different Types of
Markets (1)
 Pure competition
 The market consists of many buyers and
sellers trading in a uniform commodity
No single buyer or seller has much effect
on the going market price.
 Monopolistic competition
 The market consists of many buyers and
sellers. A range of prices occurs because
sellers can differentiate their offers to the
buyers.

5. Pricing For Different Types of
Markets (2)
 Oligopolistic competition
 The market consists of a few sellers who
are highly sensitive to each other’s pricing
and marketing strategies. The product
can be uniform or non-uniform. The
sellers are few because it is difficult for
new sellers to enter the market.
 A pure monopoly
 Consists of one seller. The seller may be a
government monopoly, a private,
regulated monopoly or a private, non-
regulated monopoly.

6. Factors to Consider When
Setting Prices (1)
 The price a company charges usually falls
somewhere between one that is too high
to produce any demand and one that is
too low to produce a profit.
 The company must consider a number of
internal and external factors including
marketing strategy and mix, the nature of
demand, and competitors’ strategies and
prices.
 Pricing decisions start with customer value.

7. Factors to Consider When
Setting Prices (2)
 Value-based pricing is setting the price
based on buyers’ perceptions of value rather
than on the seller’s cost.
 Good-value pricing is offering just the right
combination of quality and good service that
customers want at a fair price.
 Value-added pricing means attaching value
added features and services to differentiate
their offerings and this supports higher
prices.

8. Internal Factors to Consider
When Setting Prices
 Marketing objectives
 Survival
 Current profit maximisation
 Market-share leadership
 Product-quality leadership
 Other objectives
 Marketing-mix Strategy
 Cost Based Pricing
 Fixed costs
 Variable costs
 Total costs
 Costs at different levels of production
 Costs as a function of production experience

9. Pricing Decisions
 Cost-plus pricing
 Adding a standard mark up to the cost of the product.
 Breakeven analysis and target profit pricing
 Setting the price to break even on the costs of making and
marketing a product, or to make the desired profit.
 Organisational considerations
 Management must decide who within the organisation should set
prices.
 In smaller companies, the top management often set the prices.
 In larger companies, pricing is typically handled by divisional or
product-line managers.

10. External Factors Affecting
Pricing Decisions
 The Market and Demand
 Pricing in different types of markets
 Consumer Perceptions of Price and Value
 Price and Demand Relationship
 Price Elasticity of Demand
 Competitor’s Prices and Offers
 Other External Factors

11. Analysing the Price-Demand
Relationship
 The demand curve shows the
number of units the market will buy
in a given time period at different
prices.
 Price elasticity is the measure of the
sensitivity of demand to changes in
price.

12. Competitors’ Strategies and
Prices
 The competitors’ prices and possible
reactions to the company’s own
pricing moves must be considered.
 The company needs to learn the price
and quality of each competitor’s offer.
This can be done in a number of ways
e.g. comparison shopping, examining
competitors’ products and pricing,
speaking to consumers.

13. Sealed Bids and Tenders
 Setting the price based on how the firm thinks
competitors will price, rather than on its own costs or
demand, used when a company bids for jobs.

14. New-Product Pricing Strategies:
Pricing an Innovative Product
 Market-skimming pricing: setting a high price
for a new product to skim maximum revenue
from the segments willing to pay the high
price, the company makes fewer but more
profitable sales.
 Market-penetration pricing: setting a low
price for a new product in order to attract a
large number of buyers and a large market
share.

15. New-Product Pricing Strategies:
Pricing an Imitative New Product
 A company that plans to develop an
imitative product faces a product-
positioning problem.
 It must decide where to position on quality
and price.
 It must consider the competition.

16. Product-Mix Pricing
Strategies
 Product-Line Pricing
 Setting the price steps between product line items.
 Optional-Product/Service Pricing
 Pricing optional products sold with the main product.
 Captive-Product Pricing
 Pricing products that must be used with the main
product.
 Two-part pricing is a strategy for pricing services in which
price is broken into a fixed fee plus a variable usage rate.
 By-Product Pricing
 Pricing by-products to be more competitive.
 Product-Bundle Pricing
 Pricing bundles of products sold together.

17. Price-Adjustment Strategies
 Discount pricing and allowances: cash
discounts, quantity discounts,
functional discounts, seasonal
discounts and allowances.
 Segmented pricing: setting different
prices for different clients, product
forms, places or times.
 Psychological pricing: adjusting the
price to communicate the product’s
intended competitive position.

18. Price-Adjustment Strategies
 Promotional pricing: loss leader pricing,
special and psychological discounting.
 Value pricing: right combination of quality
at fair prices.
 Geographic pricing: different pricing for
distant customers, zone pricing, basing
point pricing and freight absorption
pricing.
 International pricing: the company adjusts
its price to meet different conditions and
expectation in different world markets.