Objectives
? Setting the Price
? Adapting the Price
? Initiating & Responding to Price Changes
Types of Costs
Total Costs
Sum of the Fixed and Variable Costs for a Given
Level of Production
Fixed Costs
(Overhead)
Costs that don’t
vary with sales or
production levels.
Executive Salaries
Rent
Variable Costs
Costs that do vary
directly with the
level of production.
Raw materials
Pricing Methods
? Markup Pricing
? Target Return Pricing
? Perceived Value Pricing
? Value Pricing
? Going-Rate Pricing
? Sealed-Bid Pricing
Some important pricing definitions
? Utility,The attribute that makes
it capable of want satisfaction
? Value,The worth in terms of
other products
? Price,The monetary medium of
exchange.
Value Example,Caterpillar
Tractor is $100,000 vs,Market
$90,000
$90,000 if equal
7,000 extra durable
6,000 reliability
5,000 service
2,000 warranty
$110,000 in benefits -
$10,000 discount!
Psychological Pricing
? Most Attractive?
? Better Value?
? Psychological reason to price
this way?
A
32 oz.
$2.19
B
26 oz.
$1.99
Assume Equal Quality
Discriminatory Pricing
Time
Product-form
Customer Segment
Location
? Setting the Price
? Adapting the Price
? Initiating & Responding to Price Changes
Types of Costs
Total Costs
Sum of the Fixed and Variable Costs for a Given
Level of Production
Fixed Costs
(Overhead)
Costs that don’t
vary with sales or
production levels.
Executive Salaries
Rent
Variable Costs
Costs that do vary
directly with the
level of production.
Raw materials
Pricing Methods
? Markup Pricing
? Target Return Pricing
? Perceived Value Pricing
? Value Pricing
? Going-Rate Pricing
? Sealed-Bid Pricing
Some important pricing definitions
? Utility,The attribute that makes
it capable of want satisfaction
? Value,The worth in terms of
other products
? Price,The monetary medium of
exchange.
Value Example,Caterpillar
Tractor is $100,000 vs,Market
$90,000
$90,000 if equal
7,000 extra durable
6,000 reliability
5,000 service
2,000 warranty
$110,000 in benefits -
$10,000 discount!
Psychological Pricing
? Most Attractive?
? Better Value?
? Psychological reason to price
this way?
A
32 oz.
$2.19
B
26 oz.
$1.99
Assume Equal Quality
Discriminatory Pricing
Time
Product-form
Customer Segment
Location