Principlesofmarketing.com Chapter 8 – pricing

Pricing as a strategic commitment and tool for customer satisfaction

Factors that impact the pricing decision

Supply (or cost)Demand (or revenue)Perceptions in the marketplaceCompetition and Competitors’ pricing strategiesGovernment RegulationCompany’s desired pricing position

Positive and Normative Price

Positive price – the price the organization decides to setNormative price – the price that groups may believe is appropriate given certain circumstances

Government regulation of prices and response of businesses

Three types of federal legislation that impact marketing:

1. Pro-competitive2. Consumer Protection3. Pro-trade (NAFTA, WTO, etc.)

Government regulation of prices and response of businesses:Pro-competitive Legislation

Sherman Antitrust Act (1890)Clayton Antitrust Act (1914)Federal Trade Commission Act (1916)Robinson-Patman Act (1936)Fair Goods Pricing Act (1970)

Government regulation of prices and response of businesses:Consumer Protection Legislation

Pure Food and Drug Act (1906)Federal Trade Commission Act (1916) Wheeler-Lea Act (1938)Pure Food, Drug, and Cosmetices Act (1938)Magnuson-Moss Warranty Act (1975)

Government regulation of prices and response of businesses:Pro-Trade Legislation

U.S. Constitution (1780)Domestic legislation already discussedNAFTA (North American Free Trade Agreement)GATT (general agreement on treaties and tariffs)WTO – World Trade Organization and the issue of globalization

Pricing Position

An organization should carefully establish its desired pricing positionFor example, Rolex.com and Timex.comAlso, bmw.com, etc.Remember to think in terms of positioning maps, especially when thinking about price. This works with stores, too.

Can use either a supply based pricing approach or a demand based pricing approach

Supply (or cost-based) – most common in retailing is the ‘key stone’ or the key-stoning approachDemand-based (microeconomics and price elasticity of demand)Understand these approaches, philosophically and procedurally

Determining selling price based on cost or selling price

Determining selling price based on cost

SP = MU + CSelling price (SP) = ?MU = 40 % of costCost = $6000SP = MU + CSP = .4 (6000) + 6000SP = $2400 + $6000 SP = $8400

Determining selling price based on selling price*SP = MU + CCost = $6000SP= MU + CSP = .4(SP) + 6000SP - .4SP = 6000.6SP = 6000SP = $10,000

*when markup equals fifty percent or .5 of Selling price, this is called keystoning, use .5 and see what happens!

Assignments for next week

Review the examples in Chapter Eight, and address the homework examples handed out on Price Elasticity of Demand