Price: the amount of money charged for a product or service.
- It’s the sum of all the values that consumers give up in order to gain benefits of
having/using a product/service.
- The only element in the marketing mix that produces revenue.
- All other elements represent costs.
Factors to consider when setting prices:
- A monopolist faces a downward-sloping demand curve.
- Monopolist trades off price and quantity.
- Demand,Costs, Price Elasticity of Demand Monopolist’s optimal price
Price Elasticity of Demand(PED)
% 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑑𝑒𝑚𝑎𝑛𝑑𝑒𝑑 (𝑜𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦)
PED= - = - (𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑝𝑟𝑖𝑐𝑒)
% 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑝𝑟𝑖𝑐𝑒 (𝑂𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝑃𝑟𝑖𝑐𝑒)
Elastic Demand Curve
- Small Increase in Price
- Big decrease in quantity demanded
Inelastic Demand curve
- Big increase in price
- Small decrease in quantity demanded Factors that reduce price sensitivity:
- Fewer perceived substitutes : concerts, disney theme park, patented technologies
- Unique value, strong brand: LV; Bentley
- Storability of product
Cost-based pricing: involves setting prices based on the costs for producing, distributing, and
selling the product plus a fair rate of return for its effort and risk
- It adds a standard markup to the cost of the product
Markup Price = 𝑈𝑛𝑖𝑡 𝐶𝑜𝑠𝑡
(1−𝐷𝑒𝑠𝑖𝑟𝑒𝑑 𝑅𝑎𝑡𝑒 𝑜𝑓 𝑅𝑒𝑡𝑢𝑟𝑛)
Value-based pricing: uses the buyers’ perceptions of value, not the sellers cost, as the key to
- It’s considered before the marketing program is set.
- Value-based pricing is customer driven
- Cost-based pricing is product driven
Good Value Pricing: offers the right combination of quality and good service to fair price.
- Ex. McDonald’s value menus; Armani Exchange
- Everyday Low Pricing(EDLP): involves charging a constant everyday low price with few or no
temporary price discount.
- High-Low Pricing: involves charging higher prices on an everyday basis but running frequent
promotions to lower prices temporarily on selected items. EX. Sears v