An Overview of Marketing

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Lamb, Hair, McDaniel
CHAPTER 19
Pricing Concepts
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What Is Price?
Price is that which is given up in an exchange to
acquire a good or service. PricePerceived
Value PriceQuality How availability information
affects pricing decisions of a firm
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Understanding Price
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Pricing Objectives
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How Demand and Supply Establish Price
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Price Equilibrium
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Elasticity of Demand

• Elastic Demand

• Consumers buy more or lessof a product when the
  price changes.

InelasticDemand

• An increase or decrease in price will not
  significantly affect demand.

UnitaryElasticity

• An increase in sales exactly offsets a decrease
  in prices, and revenue is unchanged.

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Elasticity of Demand
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Factors that Affect Elasticity of Demand
Availability of substitutes
Price relative to purchasing power
Product durability
A products other uses
Rate of inflation
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Elasticity Of Demand
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Yield Management Systems

• A technique for adjusting prices that uses
  complex mathematical software to profitably fill
  unused capacity. It is achieved by
• Discounting early purchases
• Limiting early sales at discounted prices
• Overbooking capacity

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Cost Determinant of Price
Many a times firms set their price based on the
COST they incur in manufacturing a product. The
notion of total cost, fixed cost, variable cost,
Average total cost, average variable cost, and
marginal cost are important for the purpose.
Break-even analysis is helpful in this regard.
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Marginal Cost and Marginal Revenue for Optimal
Profit
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Break-Even Pricing
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Break-Even Pricing
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Yield Management Systems
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Other Determinants of Price
Factors Affecting Price
Other firms enter market Price wars
Competition
Price
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The Impact of the Internet
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Impact of the Internet on Book Distribution
SOURCE Jeffrey A. Trachtenberg, Borders
Business Plan Gets a Rewrite, Wall Street
Journal, March 22, 2007 B1
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Ch 19 Discussion Questions

1. Explain the three types of pricing objectives of
   the firm.
2. What is profit maximization? How does break-even
   analysis explain profit maximization?
3. What is yield management system? What role does
   it play in pricing?
4. Discuss the (other) determinants of price.
5. What role of Internet plays in Pricing Decisions?
   Explain.