MARK1012 LECTURE 8: PRICING: MOHAMMED

MARK 1012

MOHAMMED A RAZZAQUE

LectureObjectives
1. Definepricingandunderstandfactorsinfluencingpricingdecisions
andthreemainpricingstrategies.
2. Discusstheimportanceofunderstandingcustomervalue
perceptions,costs,andcompetitorstrategieswhensettingprices.
3. Identifyanddefinetheotherimportantinternalandexternal
factorsaffectingafirmspricingdecisions.
4. Describethemainstrategiesforpricingnewandimitative
products.
5. Explainhowcompaniesfindasetofpricesthatmaximisethe
profitsfromthetotalproductmix.
6. Discusshowcompaniesadjusttheirpricestotakeintoaccount
differenttypesofcustomersandsituations.
7. Discussthekeyissuesrelatedtoinitiatingandrespondingtoprice
changes.
Mohammed A Razzaque . School of Marketing .
University of New South Wales

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MARK1012 LECTURE 8: PRICING: MOHAMMED

WhatisPrice?
Predetermined Receivable In Commercial Exchanges
Priceisthe

Companies

amountofmoneychargedfor
aproductorservice;
sumofthevaluesconsumers
exchangeforthebenefitsof
havingorusingtheproductor
service;and
onlyelementofthemarketing
mixthatproducesrevenue;
allotherelements
representcosts.

donotusuallysetasingle
price,theyadoptapricing
structure thatcoversdifferent
itemsinitsproductline.
adjustproductpricestoreflect
changingcostsanddemand
andtoaccountforvariations
inbuyersandsituations.
Revenue[orturnover]isincomethat
acompanyreceivesfromthesale of
itsofferingstocustomers.

Mohammed A Razzaque . School of Marketing

University of New South Wales

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FactorsinfluencingPricingDecisionsandPricingStrategies
Factors

Strategies

Internal

Threemainpricing
strategies:

Companysmarketing
objectives,
Companysmarketingmix
strategy,costsand
organisation.

Customervaluebased
pricing,
Costbasedpricingand
Competitionbasedpricing.

External
thenatureofthemarketand
demand,
competitionandother
environmentalfactorsthat
influencepricingdecision).

Mohammed A Razzaque . School of Marketing .

University of New South Wales

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MARK1012 LECTURE 8: PRICING: MOHAMMED

FACTORSAFFECTINGPRICE

CUSTOMER
PERCEPTIONSOFVALUE

Competitorsactions

MARKETING STRATEGY
MARKETING OBJECTIVES
MARKETING MIX
NATURE OF THE MARKET
NATURE OF DEMAND

Government

PRODUCTCOST
Mohammed A Razzaque . School of Marketing .
University of New South Wales

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FactorsAffectingPrice
MarketingObjectives. Theoverallobjectives
influenceprice:
Internal Factors

Pricing
Decisions

External Factors

Survival:

primaryfactorinmarginalbusinesses;
stayinginbusinessinhopesofmakingprofits
whenconditionsimprove.
CurrentProfitMaximisation:
emphasisingshorttermresultsoverlongrun
performance.
MarketShareLeadership:
companyseeksthedominantmarketshare;
Lowpricesincreasedemandsothatlater
volumecreatesprofit.
ProductQualityLeadership:
tendstopushpriceshigh;
maybelinkedtoniching strategy.

Mohammed A Razzaque . School of Marketing .

University of New South Wales

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MARK1012 LECTURE 8: PRICING: MOHAMMED

Internal Factors Affecting Price

MarketingMixStrategy.
Pricemustsupport theoverall
marketingmixandthepositioning
strategy.
Priceconveystoconsumeronekind
ofinformation abouttheproduct.

Costs.
Setthepricingfloorthatthe
companycancharge foritsproduct.

External Factors

Themarketand
demandsetsthe
upperlimit
Competitorsprice
andotheroffers
Otherexternal
factors

OrganisationforPricing.
HowtheOrganisationdelegatesthe
pricingfunctionaffectsprice.
Pricingisalsolinkedtooverall
companygoals.
Mohammed A Razzaque . School of Marketing
. University of New South Wales

Different
organisations
may use different
pricing strategies

Economicconditions
Government
Tradepractices

From Previous page

L8-7

CustomerValue
BasedPricing

Goodvalue
Pricing
ValueAdded
Pricing
Costplus
pricing

Majorpricing
strategies
Costbased
Pricing

Breakeven
pricing

Competition
basedPricing

Targetreturn
Pricing

Mohammed A Razzaque . School of Marketing .

University of New South Wales

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MARK1012 LECTURE 8: PRICING: MOHAMMED

Customervaluebasedpricinganditstwotypes
PriceisbasedonbuyersperceptionsofvalueNOTthesellerscost.
Analyseconsumerneedsandvalueperceptionsandthendetermine
thepricetomatchconsumersperceivedvalue.

Goodvaluepricing

Valueaddedpricing

Offeringjusttherightcombinationof
qualityandgoodservicethat
customerswantatafairprice.

Companiesadoptvalue
addedpricingstrategiesto
increasepricingpower.
NOTcuttingpricesto
matchcompetitors;rather
addingvalueadded
featuresandservicesto
differentiatetheir
offeringsandthis
supportshigherprices.

Involves:
introducinglessexpensiveversions
ofestablishedname,or
redesigningexistingbrandstooffer
morequalityforagivenprice,orthe
samequalityforless,and
EDLPoreverydaylowpricing(EDLP)
intheretailsectorisanexample.
Mohammed A Razzaque . School of Marketing .
University of New South Wales

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Costbasedpricing
Costs setthefloor for
thecompanysprice.
Thepricemust;

Itisarguedthatmany
companiespursuethe
followingcycle:

coverallcostsfor
producing,distributing,
deliveringandsellingthe
product;and
deliverafairrateofreturn
foritseffortandrisk.

Lowcostandlowpricecan
generategreatsalesand
profitandrevenue.

LowPrice

Increase
insales

Decreases
thecost

Increasein
levelof
production

Mohammed A Razzaque . School of Marketing .

University of New South Wales

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MARK1012 LECTURE 8: PRICING: MOHAMMED

TypesofCostbasedpricing
Breakevenpricingand
targetreturnpricing

Costpluspricing
Thesimplestmethod,involvesaddinga
standardmarkuptothecostofthe
product.
Priceisbasedoncostsandthedesired
profitmargin butignoresmarketdemand
factors.

Involves setting the

price to break even on
the costs of making
and marketing a
product, or to make the
desired profit.

Nostandardmarkupstosetprices.
Highestmarkup hasthehighestrisk.
Markupsaresmallestonsome
commoditiessuchasmilkandbread;
higheronseasonalitemsandperishable
goods.
Markupsvarywidelyacrossdifferent
industries.

Based on the concept

of a breakeven chart,
which shows the
total cost and total
revenue expected at
different sales
volume levels.

Mohammed A Razzaque . School of Marketing .

University of New South Wales

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Cost-Plus Pricing [Cost + Mark-Up]

Reasonsforcostpluspricingpopularityare:
Asallfirmsintheindustryuse
thismethod,pricestendtobe
similarandpricecompetitionis
minimised.

Sellersare
morecertain
oftheircosts
thantheyare
Increased
about
Certainty
demand.

Key
Reasons for
Cost-Plus
Popularity

Minimise
Price
Competition

Perceived
Fairness

Mohammed A Razzaque . School of Marketing .

University of New South Wales

Ensuresaprofitforsellersfor
theirvalueaddedactivitiesand
doesnottakeadvantageof
consumerswhendemandis
greater.

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MARK1012 LECTURE 8: PRICING: MOHAMMED

Breakeven pricing and targetreturn pricing

Breakeven Analysis.
An analysis of the company's costs in relation to
units of the product produced and sold.
Identifies the minimum pricing level the company's
activities can support.

Target Profit Pricing.

A variation on break-even analysis that links price
to profit objectives above total costs.
Computationally appealing; however, its use in planning
should accommodate the fact that increased prices
decrease demand.

Mohammed A Razzaque . School of

Marketing . University of New South Wales

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TypesofCosts
Costs setthepricingfloorthatthecompanycanchargefor
itsproduct.Therearetwotypesofcosts:
FixedCosts (oroverhead)arecoststhatdonotvarywith
productionorsaleslevels.
VariableCosts varydirectlywiththelevelofproduction.

TotalCosts thesumofthefixedandvariablecostsfor
anygivenlevelofproduction varywithlevelof
production.
Pricemustcoverthetotalcost.Highercostwillleadtoahigher
priceandlessprofit,whichresultsinacompetitivedisadvantage.
Managementmustconsiderhowcostswillchangeatdifferent
levelsofproductionaspartoftheiroveralldemandmanagement
strategy.
Mohammed A Razzaque . School of Marketing .
University of New South Wales

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MARK1012 LECTURE 8: PRICING: MOHAMMED

COSTPLUSPRICING:COMPUTATION
ForProductX,perunitvariablecostis$47,fixedcostsis
$500,000andexpectedunitsalesvolumeis20,000units.Ifthe
manufacturerintendstoearna20%markuponsales,what
willbethemanufacturersmarkupprice?
ManufacturerscostsperunitofX=unitcost+fixedcosts/unitsales
=$47+500,000/20,000=$72
Letthemarkuppricebe
Then (1 desiredreturnonsales)=$72
=$72/(1 .2)=$90.00
WhatistheMarginalRevenue[MR]here?$90.00
MRistheadditionalrevenuethataproducerreceivesfromsellingonemoreunit
ofthegood.

Unless otherwise stated, mark-up is always calculated on sales; NOT on costs.

In the above example, calculating the markup price as
$72 x (1 +.2) = $86.4 would be incorrect.
Mohammed A Razzaque . School of Marketing .
University of New South Wales

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BreakevenAnalysisI

Cost in Dollars
(thousands)

Break-even analysis identifies the so-called break-even point, i.e., the

volume at which total costs (fixed and variable) and total revenue are
equal. At Break-even volume [unit terms or dollar terms]
total profit is zero: the organization neither makes a profit nor incurs a loss.

Total Revenue

1,200
1,000
800
600
400
200

Target Profit ($200,000)

Total Cost
Fixed Cost
10

20

30

40

50

Sales Volume in Units (thousands)

Mohammed A Razzaque . School of Marketing .

University of New South Wales

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BreakevenAnalysisII
Inequationformafirm'sprofit(orloss)maybeexpressedas:
Profit=Totalrevenue [totalvariablecosts+totalfixedcosts]
Sinceprofit(orloss)iszeroatthebreakevenpoint,theaboveequation
mayberewrittenas:
Totalrevenue =Totalvariablecosts+Totalfixedcosts
Theformulafordeterminingthenumberofunitsrequiredtobreakeven
isasfollows:
1. Breakevenpoint[BEP]inunits =TotalFixedCost
Contributionmargin
2. Breakevenpoint[BEP]indollars =Totalfixedcost
Variablecostperunit

1--sellingpriceperunit
= BreakevenpointinunitsxSellingpriceperunit
Mohammed A Razzaque . School of Marketing .
University of New South Wales

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IllustrativeExampleI
ConsiderthefollowingdataforPositronInc:(1)directlaboris$8.50perunit,
(2)rawmaterialsare$3perunit,(3)sellingpriceis$24perunits,(4)
advertisingandsalesforcecostsare$380,000,and(5)otherrelevantfixed
costsare$120,000.
Contributionperunit

=Sellingprice Variablecosts
=$24.00 ($8.50+$3.00)=$12.50

Breakevenpointinunits =__Totalfixedcosts__
Contributionperunit
=[$380,000+$120,000]/$12.50
=40,000units
Breakevenpointindollars

=_$500,000__
1 $11.50/24.00
=_$500,000_
=$960,000
1 0.479167
AlternativelyBreakevenpointindollars=40,000X$24.00perunit
=$960,000

Mohammed A Razzaque . School of Marketing .

University of New South Wales

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MARK1012 LECTURE 8: PRICING: MOHAMMED

IllustrativeExampleII
BEPWithprofitTarget

SupposeSingtronwantstoachieveaprofitgoalof$100,000.
Howmanyunitsshouldtheysell?
Breakevenpointinunits=__Totalfixedcosts_+Targetprofit_
Contributionperunit
=[$380,000+$120,000+$100,000]/$12.50
=48,000units
Breakevenpointindollars=_$600,000__
1 $11.50/24.00
=_$600,000_
=$1152,000
1 0.479167
AlternativelyBreakevenpointindollars=40,000X$24.00perunit
=$1152,000

Mohammed A Razzaque . School of Marketing .

University of New South Wales

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Valuebasedpricingvs CostBasedPricing

Mohammed A Razzaque . School of Marketing .

University of New South Wales

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MARK1012 LECTURE 8: PRICING: MOHAMMED

ValueBasedPricing
Cost Based
Product

Value Based
START

Customer

Cost

Value

Price

Price

Value

Cost

Customers

Product

Reverseofcostbasedapproach,
usesthebuyer'sperceptionof
valueasthekeytopricing,and
utilisesnonpricemixvariablesto
helpsetperceivedvalueinbuyer's
mind.
Themarketermusthaveanaccurate
viewofwhatbenefitsandfeatures
consumerwantandarewillingtopayfor
insettingaspecificvaluepricinggoal.

Toyota used this approach on its lower end cars like the Tercel and the Corolla in the
early 1980s. Once the value price was determined and profit per car objectives set,
engineers and designers were challenged with the task of making the cost of
production support those goals.
Mohammed A Razzaque . School of Marketing .
University of New South Wales

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CompetitionbasedpricingI
Involvessettingpricesbasedoncompetitors
strategies,costs,pricesandmarketofferings.
Whatprincipleshouldguidedecisionsaboutwhat
pricetochargerelativetothoseofcompetitors?
Theanswerissimpleinconceptbutdifficultinpractice.
Becertaintogivecustomerssuperiorvaluefortheprice.

Mohammed A Razzaque . School of Marketing .

University of New South Wales

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CompetitionBasedPricingII
Economic value pricing
more applicable to industrial markets;

Costs

sort of a package pricing that may include purchase

price, installation costs, maintenance, disposal costs
etc.

??
??
Bid / Tender
??

Going-Rate Pricing approach

bases price largely on what competitors charge for
their products.
Popular in markets where demand elasticity is
difficult to measure.

Sealed-Bid Pricing approach

involves competition between sellers attempting to
under price each other while still covering costs.

Contract

Common in bidding for government contracts.

Mohammed A Razzaque . School of Marketing .
University of New South Wales

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Themarketanddemand I
Marketanddemandsettheupperlimitofprices. Pricingvariesin
differenttypesofmarkets
Monopolisticcompetition:
manybuyers andsellerstradingoverarangeofprices.
Productscanbedifferentiatedinquality,features,orstyles.

Oligopolisticcompetition:
fewsellerseachsensitivetotheother'spricingandstrategies.
Barrierstoentryprohibitnewsellersfromenteringthemarket.

Puremonopoly:
asingleseller,e.g.,government,orregulated/unregulatedmonopoly
Pricingmaybelinkedtootherthancostorprofitfactors,includingfearof
competitionenteringorregulation.

Purecompetition:
Manybuyersandsellerstradinginauniformcommoditysothatnoone
agentaffectspricing.
Goingratepricingistherule.
Mohammed A Razzaque . School of Marketing .
University of New South Wales

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MARK1012 LECTURE 8: PRICING: MOHAMMED

Themarketanddemand II
ConsumerPerceptionsofPriceandValue.
Buyersultimatelydecideprices.Marketersmustcombinetechnicalexpertisewith
creativejudgementandanawarenessofbuyersmotivations.

Pricedemandrelationshipvariesfromproducttoproduct
Ademandcurve showsthenumberofunitsthemarketwillbuyinagiventime
periodatvariousprices.
Thepriceelasticityofdemand illustrateshowresponsivedemandwillbetoa
changeinprice.Twoconceptsareimportanthere:

InelasticDemand. demandhardlychangeswithasmallchangeinprice,
ElasticDemand. smallchangeinpriceschangesdemandgreatly,

Ethicalissuesinvolvedinpricingproductscharacterisedby
inelasticdemandareoftencomplicatedandcontroversial.

Mohammed A Razzaque . School of Marketing .

University of New South Wales

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ElasticityofDemand
Priceelasticityofdemand=Percentchangeinquantitydemanded
Percentchangeinprice

DonotconfusethisconceptwithMarginalRevenueorMR
MarginalRevenue=ChangeinRevenue
ChangeinQuantity
Mohammed A Razzaque . School of Marketing .
University of New South Wales

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MARK1012 LECTURE 8: PRICING: MOHAMMED

Moreonelasticity

Otherthingsequal,ifafirmfindsthedemandforone
ofitsproductsisinelastic,itcanINCREASEitstotal
revenuesbyraisingitsprice.
Withinelasticdemand,pricereductioncausesthequantity
soldtoincreasebuttotalrevenueactuallydecreases.So
withinelasticdemandwhileapriceincreasecausesthe
quantitysoldtodecrease,thetotalrevenueincreases.

Themoresubstitutesaproducthas,themorelikelyit
istobepriceelastic.
Inmanysnackmachinestoday,thebuyerhasmorethan
twodozenchoicesmakingthedemandmoreelastic.
Mohammed A Razzaque . School of Marketing .
University of New South Wales

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PricingaNew(andinovative)product
Market skimming prices:
setting a high initial price for a new product to
skim maximum revenue from the segments
willing to pay the high price;
the company makes fewer but more profitable
sales.

Market penetration prices:

setting a low initial price for a new product to
attract a large number of buyers; and
obtain a large market share.

Pricing an imitative new product:

positioning problems encountered
Mohammed A Razzaque . School of Marketing .
University of New South Wales

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MARK1012 LECTURE 8: PRICING: MOHAMMED

FourNewProductPricingStrategies
Promotion

High

High

Low

Rapidskimming
strategy

Slowskimming
strategy

Rapidpenetration
strategy

Slowpenetration
strategy

Price
Low

Mohammed A Razzaque . School of Marketing

. University of New South Wales

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ProductmixpricingstrategiesI
The strategy for
setting a price on an
offer often has to be
changed when the
product or service is
part of a mix.
This section
introduces five
productmix and
servicemix pricing
situations

Product Line Pricing

Setting Price Steps Between Product Line Items

Captive-Product Pricing

Pricing Products That Must Be Used With The Main Product

Product-Bundle Pricing

Pricing Bundles Of Products Sold Together

Optional-Product Pricing

Pricing Optional Products Sold With The Main Product

By-Product Pricing

Pricing Low-Value By-Products To Get Rid of Them

Mohammed A Razzaque . School of Marketing .

University of New South Wales

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MARK1012 LECTURE 8: PRICING: MOHAMMED

ProductMixPricingStrategiesII
ProductLinePricing.
Companiesusuallydevelopproductlinesratherthansingle
products.(e.g.dressshirts,airconditioners,refrigerators).
Referstosettingpricestepsbetweeneachproductintheline
establishingasinglepriceforallproductsinaproductline,
suchashavingapriceof$75forthehighpricedline,$55for
themediumpricedline,and$35forthelowerpricedline.

OptionalProductPricing.
Allowscompaniestopresentalowbasepricecapableof
attractingcustomerswhilemaintainingthepossibilityof
generatinghighrevenuesbysellingcostlyaddonslater.
Carsaregoodexamples.
Mohammed A Razzaque . School of Marketing .
University of New South Wales

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Product-Mix Pricing Strategies III

CaptiveProductPricing.
Pricingproductsthatmustbeusedwithamainproduct.
Forexample,therazorispricedlowwhilehighmarkupsare
attachedtothepriceoftheblades.

ByProductPricing.
Wastefromproductionanddistributionmaybesoldasby
productsallowingproducerstolowerpricesandcostsontheir
mainproducts.
Meatproducts,petroleum/chemicalproductsareexamples.

ProductBundlePricing.
combinesseveralproductsandoffersthematareducedprice
fromthecostofeachproductpurchasedseparately.
Seasonticketsandgroupratesareexamples.
Mohammed A Razzaque . School of Marketing .
University of New South Wales

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MARK1012 LECTURE 8: PRICING: MOHAMMED

PriceAdjustmentStrategies I
Companies typically adjust their prices to account for various
customer differences and changing situations:

Mohammed A Razzaque . School of Marketing .

University of New South Wales

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PriceAdjustmentStrategies II
DiscountsandAllowances:Reductionfromtheusualprice
Discounts

Allowances

Cashdiscount,apricereductionto
buyerswhopaytheirbillspromptly.

Quantity discount isapricereduction

tobuyerswhobuylargevolumes.

Functionaldiscount (ortrade
discount)isofferedbythesellerto
tradechannelmemberswho
performcertainfunctions.
Seasonaldiscount isaprice
reductiontobuyerswhobuy
merchandiseorservicesoutof
season.
Mohammed A Razzaque . School of Marketing .
University of New South Wales

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Tradeinallowances areprice
reductionsgivenforturning
inanolditemwhenbuyinga
newone.
Promotionalallowances are
paymentsorpricereductions
torewarddealersfor
participatinginadvertising
andsalessupportprograms

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PriceAdjustmentStrategies III
SegmentedPricing referstopricingdifferencesnotbasedon
costsandtakesseveralforms:
Customersegmentpricing targetaspecificsegment,asinsenior
citizendiscounts.
Productformpricingvariescostsonversionsofaproductbyfeatures
butnotproductioncosts.
Locationpricingstemsfrompreferenceswheredifferentlocations
havedifferentperceivedvalues,e.g.,seating inatheatre.
Timepricingreferstopricebreaksgivenattimesoflowerdemand;
e.g.,peak/offpeakseasonpricing

PsychologicalPricing basedonthereferencepriceconsumers
carryintheirmindwhenconsideringsellersprices.
Mohammed A Razzaque . School of Marketing .
University of New South Wales

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PriceAdjustmentStrategies IV
Promotionaladjustmentsrefertotemporaryreductionsbelow
listandsometimesbelowcosts,usedtoattractcustomers:

More
Price
Adjustment
Strategies

Geographical

Lossleaders.Productsofferedbelow
coststoattractattentiontoanentire
line.
Specialevent.Pricingusedduring
slowseasons.
Value

International

Promotional

Cashrebates orlowfinancing.
Offeringextrastobringin
customersonthebrinkandhelp
themdecidetofinallypurchase.
ValuePricing.Offeringtheright
combinationofqualityandgood
serviceatafairprice.

Mohammed A Razzaque . School of Marketing .

University of New South Wales

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PriceAdjustmentStrategies V
Geographicalpricing
Involves
deciding
howtoprice
productsfor
customers
locatedin
different
partsofthe
countryor
world.

FOBorigin pricing: The goods are placed free on

board (hence, FOB) a carrier. The title and responsibility
pass to the customer, who pays the freight from the
factory to the destination.
Uniformdelivered pricing The opposite of FOB
pricing. Here, the company charges the same price plus
freight to all customers, regardless of their location.
Zone pricing : All customers in a given zone pay a single
total price; the more distant the zone, the higher the
price.
Basingpoint pricing: The seller selects a given city as a
basing point and charges all customers the freight cost
from that city to the customer location, regardless of the
city from which the goods are actually shipped.
Freightabsorption pricing: The seller absorbs all or
part of the actual freight charges in order to get the
desired business

Mohammed A Razzaque . School of Marketing .

University of New South Wales

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OtherTypesofPriceAdjustments
DynamicPricing
Adjustingpricescontinuallytomeetthecharacteristics
andneedsofindividualcustomersandsituations.

InternationalPricing
Thepricethatacompanyshouldchargeinaspecific
countrydependsonmanyfactors,includingeconomic
conditions,competitivesituations,lawsandregulations.

Mohammed A Razzaque . School of Marketing .

University of New South Wales

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LossLeaderStrategy
Offeringaproduct/serviceatapricethatis notprofitablefor
thesakeofofferinganotherproduct/serviceatagreater
profitortoattractnewcustomers.
Acommonpracticewhenabusinessfirstentersamarket;
Alossleaderintroducesnewcustomerstoaproduct/servicein
the hopeofbuildingacustomerbaseand securingrecurringrevenue.
Morethanjustaniftybusinesstrick itisasuccessfulstrategyif
executedproperly.
Example:Razorblades. CompanieslikeGilletteessentiallygivetheirrazor
unitsawayforfree,knowingthatcustomerswillhavetobuytheir
replacementblades,whichiswherethecompanymakesallofitsprofit.
Example: Microsoft'sXboxvideogamesystem,whichwassoldataloss
of morethan $100perunittocreatemorepotentialto profit fromthesale
of highermarginvideogames.
Mohammed A Razzaque . School of Marketing .
University of New South Wales

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Pricechangesmaybeinitiatedforseveralreasons
Price Cuts: Stem from
overcapacity, falling
market share, or
attempts to dominate
the market through
lower costs.
Buyer Reactions to Price
Changes: May be direct,
though not always.
Sometimes higher
prices support quality
improvements and
lower prices mean
company or product
problems.

Price Increases:
Initiating
Price Cuts

Initiating
Price Increases

Issues in Price
Change Strategies

Buyer
Reactions

Competitor
Reactions

Whether the buyer perceptions are correct or wrong will not

immediately change their inclination to act on them.
Mohammed A Razzaque . School of Marketing .
University of New South Wales

Inflation, tendency to
speculate on
inflationary trends, and
over demand may
cause prices to rise.
Higher prices can also
increase profit margins.

Competitor Reactions
to Price Changes: Most
often react in industries
with a small number of
firms, uniform products
in the market, and buyers
are well informed. May
be similar price changes
or increased non price
competition.
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MARK1012 LECTURE 8: PRICING: MOHAMMED

Responding to price changes

Copyright 2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) 9781442531109/Kotler/POM/5e
Mohammed A Razzaque . School of Marketing . University of
New South Wales

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Public policy and pricing

[Practices that are prohibited by law]
Pricefixing:settingpricesbya selleraftertalkingtoitscompetitors
Predatorypricing:sellingbelowcostwiththeintentionof
punishingacompetitorordrivingcompetitorsoutofbusiness.
Requiring dealers
to charge a
specified
retail price.

Stating prices or price

savings that mislead
consumers or are not
actually available to
consumers

Offering different
price terms to
customers at a given
level of trade.

Copyright 2012 Pearson Australia (a division of Pearson Australia Group Pty Ltd) 9781442531109/Kotler/POM/5e

Mohammed A Razzaque . School of Marketing .

University of New South Wales

21

L8-42

MARK1012 LECTURE 8: PRICING: MOHAMMED

SettingPricingPolicy
1. Selecting the pricing objective

2. Determining demand

3. Estimating costs
4. Analyzing competitors
costs, prices, and offers
5. Selecting a pricing method
6. Selecting final price
Mohammed A Razzaque . School of Marketing .
University of New South Wales

L8-43

22