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