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Pricing Concepts

17. Pricing Concepts. Prepared by Deborah Baker Texas Christian University. Learning Objectives. 1. Discuss the importance of pricing decisions to the economy and to the individual firm 2. List and explain a variety of pricing objectives

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Pricing Concepts

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  1. 17 Pricing Concepts Prepared by Deborah Baker Texas Christian University

  2. Learning Objectives 1. Discuss the importance of pricing decisions to the economy and to the individual firm 2. List and explain a variety of pricing objectives 3. Explain the role of demand in price determination

  3. Learning Objectives (continued) 4. Understand the concept of yield management systems 5. Describe cost-oriented pricing strategies 6. Demonstrate how the product life cycle, competition, distribution and promotion strategies, customer demands, the Internet and extranets, and perceptions of quality can affect price

  4. Revenue = Unit Price  Number of units sold • Revenue pays for every activity. • What’s left over is Profit. The Importance of Price Price = Perceived Value Low Price High Price 1

  5. Profit-Oriented Pricing Objectives Profit-Oriented Pricing Objectives Profit Maximization SatisfactoryProfits Target Return on Investment 2

  6. Sales-Oriented Pricing Objectives Market Share Sales Maximization Sales-Oriented Pricing Objectives 2

  7. Status Quo Pricing Objectives Maintain existing prices Meet competition’s prices Status Quo Pricing Objectives Online http://www.target.com http://www.walmart.com http://www.jcpenney.com 2

  8. Demand The quantity of a product that will be sold in the market at various prices for a specified period. Supply The quantity of a product that will be offered to the market by a supplier at various prices for a specific period. Demand and Supply Online http://www.uBid.com 3

  9. Elastic Demand • Consumers buy more or lessof a product when the price changes InelasticDemand • An increase or decrease in price will not significantly affect demand UnitaryElasticity • An increase in sales exactly offsets a decrease in prices, and revenue is unchanged Elasticity of Demand 3

  10. Availability of substitutes Price relative to purchasing power Product durability A product’s other uses Factors that Affect Elasticity of Demand Online http://www.columbiahouse.com 3

  11. Discounting early purchases Limiting early sales at discounted prices Overbooking capacity Yield Management Systems Price Adjustments 4

  12. The Cost Determinant of Price Types of Costs Variable Costs Fixed Costs 5

  13. Markup pricing Methods Used to Set Prices Keystoning Profit Maximization Pricing Break-Even Pricing Target-Return Pricing The Cost Determinant of Price 5

  14. Markup Pricing Markup Pricing Keystoning 5

  15. Profit Maximization Profit Maximization Marginal Revenue 5

  16. Total Revenue Profit Total Costs 4,000 Break-even point Price Loss 2,000 Fixed costs 3,000 4,000 5,000 6,000 0 1,000 2,000 Quantity Break-Even Pricing 5

  17. Stages of the Product Life Cycle Competition Distribution Strategy Promotion Strategy Perceived Quality Other Determinants of Price 6

  18. Exclusive distribution system Franchising Avoid business with price-cutting discounters Package marked with selling price Place goods on consignment Deliver quality and value Regaining Price Control 6

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