COMMON NOTIONS ON PRICING

• Pricing our products to cover full costs will

make us profitable. True or False?
• Pricing our products to grow market share
will make us profitable. True or false?
• Pricing our products to meet customer
demands will make us profitable. True or
False?
THREE DIMENSIONS OF PRICING

COMPETITION

DEMAND COST
THE RANGE OF PRICING OPTIONS
HIGH PRICE

Ceiling Price
Customer
Perceived value

Reference Point
Competition

Costs
Floor Price

LOW PRICE
 DEMAND DRIVERS

Demand Curve, Price Sensitivity, Total Cost of Ownership (TCO)

Inelastic Demand Elastic Demand

Price 

Price 

Quantity Demanded  Quantity Demanded 

Demand elasticity depends on the magnitude and direction of
the price change
 COST DRIVERS
Total Cost = Fixed Cost + Variable Cost

Levels of Production Accumulated Production

Cost per Unit

Cost per Unit 

*
* *
* *
* *

Quantity Produced per Day  Accumulated Quantity 

Experience Curve or
Learning Curve
 DEVELOPING PRICING POLICIES

SET PRICING ESTIMATE ESTIMATE

OBJECTIVE DEMAND COST

•SKIMMING •DEMAND CURVE •TYPE

•PROFIT •PRICE SENSITIVITY •VOLUME
•MARKET SHARE •ELASTICITY •EXPERIENCE
•SURVIVAL •ABC
•TARGET

SELECT A ANALYZE
SELECT THE
FINAL PRICE PRICING COMPETITION
METHOD
• MARKUP
• TARGET-RETURN
• PERCEIVED-VALUE
• VALUE
• GOING RATE
• AUCTION
TWO DIFFERING PRICING OBJECTIVES

• Max Market Share • Market Skimming

– Price sensitive market – Adequate demand
– Low price => growth – Low production
– Cost falls w/ exprnc. volume is feasible
– low price => – High price => image
competitive edge – High price =>
– Electronic Goods from competitive edge
TI – HDTV from SONY