Factors to consider when
setting prices and it’s
general pricing approaches
By group 2
Price
In the narrowest sense is the amount of money charged for a product or service.
In a more broadly sense, is the sum of all the values that consumers exchange for the
benefits of having or using the product or service.
Has been the major factor affecting buyer’s choice.
Were set by negotiation between buyers and sellers/
Is the only element in the market mix that produce revenue: all other elements represent
costs.
One of the most flexible elements of the market mix.
Fixed-price policies
Setting one price for all buyers.
A relatively modern idea that evolved with the
development of large-scale retailing at the end of
the nineteenth century.
Pricing and price competition
The number one problem facing many marketers.
Many companies do not handle this well.
Frequent problems of companies in pricing
Too quick to cut prices to gain a sale rather than convincing buyers
that their products or services are worth a higher price.
Pricing is too cost oriented rather than customer-value oriented.
Factors to consider when setting prices
Internal factors
Marketing External factors
objectives Nature of the
Marketing- Pricing demand
Competition
mix strategy decisions
Other
Costs
environmental
Organization
factors(economy
for pricing
, resellers,
government)
Internal factors affecting pricing decisions
Marketing objectives
Marketing-mix strategy
Cost
variable cost
Total cost
Fixed cost
Marketing Objectives
The company must decide on its strategy for the product.
If the company has selected its target market and positioning
carefully, then its marketing-mix strategy, including price, will be
straightforward.
A firm that has clearly defined its objectives will find it easier to set
price.
Marketing-mix Strategy
Price decisions must be coordinated with product design,
distribution, and promotion decisions to form a consistent and
effective marketing program.
Decisions made for other marketing-mix variables may affect
pricing decisions.
Companies often make their pricing decisions first and then base
other marketing-mix decisions on the prices that they want to
charge.
Cost
Set the floor for the price that the company can charge for its product.
The company wants to charge a price that both covers all its cost for
producing, distributing, and selling the product, and delivers a fair rate of
return for its effort and risk.
TYPES OF COST
Variable cost
Total cost
Fixed cost
Variable cost
Vary directly with the level of production.
These costs tend to be the same for each unit produced, their total
varying with the number of units produced.
Total cost
The sum of the fixed and variable cost for any given level
of production.
Management wants to charge a price that will cover the
total production costs at a given level of production
Fixed cost
Also known as overheads.
Are cost that do not vary with production or sales level.
Organizational considerations
Management must decide who within the organization should set price. Companies
handle pricing in a variety of ways.
ORGANIZATIONAL CONSIDERATION FOR EACH LEVEL
Small companies- prices are often set by top management rather than by the marketing
or sales department.
Large companies- pricing is typically handled by divisional or product line managers.
Industry markets- salespeople may be allowed to negotiate with customers within
certain price range
