10-1

PRINCIPLES OF MARKETING
Eighth Edition
Philip Kotler and Gary Armstrong

Chapter 10
Pricing Products:
Pricing Considerations
and Approaches
 Copyright 1999 Prentice Hall
Factors to Consider When Setting 10-2

Prices

Internal Factors

Positioning Pricing Target

Objectives Decisions Market

External Factors

 Copyright 1999 Prentice Hall

Internal Factors Affecting Pricing 10-3

Decisions
Marketing
Objectives
Marketing-Mix
Strategy

Costs

Organizational
Considerations

 Copyright 1999 Prentice Hall

Marketing Objectives that Affect 10-4

Pricing Decisions

Survival
Low Prices to Cover Variable Costs and
Some Fixed Costs to Stay in Business.

Current Profit Maximization

Choose the Price that Produces the
Marketing Maximum Current Profit, Cash Flow or ROI.

Objectives Market Share Leadership

Low as Possible Prices to Become
the Market Share Leader.

Product Quality Leadership

High Prices to Cover Higher
Performance Quality

 Copyright 1999 Prentice Hall

Marketing Mix Variables that Affect 10-5

Pricing Decisions
Product Design
and Quality

Marketing-Mix
Non-Price
Factors Strategy Distribution

Promotion

 Copyright 1999 Prentice Hall

Types of Cost Factors that 10-6

Affect Pricing Decisions

Total Costs
Sum of the Fixed and Variable Costs for a Given
Level of Production

Fixed Costs
(Overhead) Variable Costs
Costs that don’t
vary with sales or Costs that do vary
production levels. directly with the
level of production.
Executive Salaries
Rent Raw materials

 Copyright 1999 Prentice Hall

Costs Considerations 10-7

Cost Per Unit at Different Levels of Production Per Period

Cost per unit

1
2
3 SRAC
4 LRAC
1,000

3,000

4,000
2,000

Quantity Produced per Day

 Copyright 1999 Prentice Hall

External Factors Affecting Pricing 10-8

Decisions

Market and
Demand

Competitors’ Costs,
Prices, and Offers
Other External Factors
Economic Conditions
Reseller Needs
Government Actions
Social Concerns

 Copyright 1999 Prentice Hall

 10-9
The Market and Demand Factors that
Affect Pricing Decisions
Pure Competition Monopolistic Competition
Many Buyers and Sellers Who Many Buyers and Sellers Trading
Have Little Affect on the Price. Over a Range of Prices.

Different Types of Markets

Oligopolistic Competition Pure Monopoly

Few Sellers Each Sensitive to Other’s
Single Seller
Pricing/ Marketing Strategies

 Copyright 1999 Prentice Hall

Demand Curves 10-10

A. Inelastic Demand -
Demand Hardly Changes With
a Small Change in Price.
Price

P2
P1

Q2 Q1
Quantity Demanded per Period
B. Elastic Demand -
Demand Changes Greatly With
a Small Change in Price.
Price

P’2
P’1

Q2 Q1
Quantity Demanded per Period
 Copyright 1999 Prentice Hall
 10-11
What is Cost-Plus Pricing and Why
is it Popular?
Adding a Standard Markup to the Cost of the Product

Sellers Are More Minimizes

Certain About Price
Costs Than Competition
Demand

Perceived
Fairness to
Both Buyers
and Sellers

 Copyright 1999 Prentice Hall

 10-12
Breakeven Analysis or Target Profit Pricing
Tries to Determine the Price at Which a Firm Will
Break Even or Make a Target Profit
Cost in Dollars (thousands)

1,200 Total Revenue

1,000
Target Profit
800 ($200,000)
Total Cost
600
400 Fixed Cost
200

10 20 30 40 50
Sales Volume in Units (thousands)

 Copyright 1999 Prentice Hall

Value-Based Pricing 10-13

Cost-Based Pricing Value-Based Pricing

Product Customer

Cost Value

Price Price

Value Cost

Customers Product
 Copyright 1999 Prentice Hall
Competition-Based Pricing 10-14

Setting Prices

Going-Rate
Company Sets Prices Based on What
Competitors Are Charging.

Sealed-Bid
? Company Sets Prices Based on
? What TheyWillThink Competitors
Charge.
 Copyright 1999 Prentice Hall