10
PRICING
CONSIDERATIONS AND
STRATEGIES
Manajemen Pemasaran
Departemen Manajemen
FEM
BOGOR AGRICULTURAL UNIVERSITY (IPB), INDONESIA
www.ipb.ac.id
ROAD MAP: Previewing the Concepts
Identify and explain the external and internal
factors affecting a firm's pricing decisions.
Contrast the three general approaches to
setting prices.
Describe the major strategies for pricing
imitative and new products.
Explain how companies find a set of prices
that maximizes the profits from the total
product mix.
Discuss how companies adjust their prices to
take into account different types of customers
and situations.
Discuss the key issues related to initiating
What is a Price?
Narrowly, price is the amount of money
charged for a product or service.
Broadly, price is the sum of all the values
that consumers exchange for the
benefits of having or using the product
or service.
Dynamic Pricing: charging different
prices depending on individual
customers and situations.
Factors Affecting Pricing
Decisions
Internal Factors Affecting
Pricing Decisions
Marketing Objectives:
Company must decide on its strategy for
the product.
General Objectives:
Survival,
current profit maximization, market
share leadership, and product quality
leadership.
Internal Factors Affecting
Pricing Decisions
Marketing Mix Strategy:
Price decisions must be coordinated with
product design, distribution, and promotion
decisions to form a consistent and effective
marketing program.
Target costing:
Pricing
that starts with an ideal selling price,
then targets costs that will ensure that the
price is met.
Internal Factors Affecting
Pricing Decisions
Costs:
Fixed Costs:
Costs
that do not vary with production or sales
level.
Variable Costs:
Costs
that vary directly with the level of
production.
Internal Factors Affecting
Pricing Decisions
Organizational Considerations:
Must decide who within the organization
should set prices.
This will vary depending on the size and
type of company.
External Factors Affecting
Pricing Decisions
The Market and Demand:
Costs set the lower limit of prices.
The market and demand set the upper limit.
Pricing in Different Types of
Markets
Pure Competition:
Monopolistic Competition:
Many buyers and sellers
Many buyers and sellers
where each has little effect
who trade over a
on the going market price
range of prices
Oligopolistic Competition:
Few sellers who are
sensitive to each others
pricing/marketing strategies
Pure Monopoly:
Market consists of a
single seller
Demand Curve
A curve that
shows the
number of units
the market will
buy in a given
time period, at
different prices
that might be
charged.
Major Considerations in Setting
Price
Cost-Plus Pricing
Adding a standard markup to the cost of
the product.
Popular because:
Sellers more certain about cost than
demand
Simplifies pricing
When all sellers use, prices are similar and
competition is minimized
Some feel it is more fair to both buyers and
sellers
Jika TC unit = 20$, berapa P jika di Mark
up 20%?
Break-Even Chart
Diketahui : FC = 1000$, Q = 25 pcs,
Cu=20
Ditanya :
a. BEP (P)
b. Bila P dinaikan menjadi 70$ berapa
BEP (Q)
Value-Based Pricing
Uses buyers perceptions of value, not
the sellers cost, as the key to pricing.
Perceived Value
A less
expensive
piano might
play well, but
would it take
you places your
have never
been before?
Competition-Based Pricing
Going-Rate Pricing:
Firm bases its price largely on competitors
prices, with less attention paid to its own
costs or to demand.
Sealed-Bid Pricing:
Firm bases its price on how it thinks
competitors will price rather than on its
own costs or on demand.
New-Product Pricing Strategies
MarketSkimming
Set a high price for a
new product to
skim revenues
layer by layer from
the market.
Company makes
fewer, but more
profitable sales.
When to use:
Products quality and
image must support its
higher price.
Costs of smaller volume
cannot be so high they
cancel the advantage of
charging more.
Competitors should not
be able to enter market
easily and undercut the
high price.
New-Product Pricing Strategies
Market Penetration
When to use:
Set a low initial price
in order to
penetrate the
market quickly and
deeply.
Can attract a large
number of buyers
quickly and win a
large market share.
Market must be highly
price sensitive so a low
price produces more
market growth.
Production and
distribution costs must
fall as sales volume
increases.
Must keep out
competition and
maintain low price or
effects are only
temporary.
Product Line Pricing
Involves setting price steps between
various products in a product line based
on:
Cost differences between products
Customer evaluations of different features
Competitors prices
Optional- and Captive-Product
Pricing
Optional-Product
Pricing optional or accessory products sold
with the main product (e.g., ice maker with
the refrigerator).
Captive-Product
Pricing products that must be used with the
main product (e.g., replacement cartridges
for Gillette razors).
Pricing Strategies
By-Product Pricing:
Setting a price for by-products in order to make the main
products price more competitive (e.g., sawdust and
Zoo Doo)
Product Bundle Pricing:
Combining several products and offering the bundle
at a reduced price (e.g., computer with software and
Internet access).
Discounts and Allowances
Discounts
Allowances
Cash
Trade-In
Quantity
Promotional
Functional
Seasonal
Segmented Pricing
Selling a product or service at two or
more prices, where the difference in
prices is not based on differences in
costs.
Types:
1.
2.
3.
4.
Customer-segment
Product-form
Location pricing
Time pricing
Psychological Pricing
Considers the psychology
of prices and not simply
the economics.
Consumers usually
perceive higher-priced
products as having higher
quality.
Consumers use price less
when they can judge
quality of a product.
Promotional Pricing
Temporarily pricing products below list price and
sometimes even below cost to create buying
excitement and urgency.
Approaches:
Low-Interest Financing
Longer Warranties
Free Maintenance
Discounts
Loss Leaders
Special-Event Pricing
Cash Rebates
Promotional Pricing
Companies offer promotional prices to create buying excitement and
urgency.
Geographical Pricing
FOB-origin pricing
Uniform-delivered
pricing
Zone pricing
Basing-point
pricing
Freight-absorption
pricing
International Pricing
Price depends on
many factors,
including:
Economic conditions
Competitive
situations
Laws and
regulations
Development of the
wholesaling and
retailing system
Costs
Initiating Price Changes
Price Cuts
Price
Increases
Excess Capacity
Cost Inflation
Falling Market
Share
Overdemand:
Cannot Supply
All Customers
Needs
Dominate Market
Through Lower
Costs
Buyers Reactions to Price
Changes
What would
you think if the
price of Joy was
suddenly cut in
half?
Assessing and Responding to
Competitor Price Changes
Public Policy and Pricing
