Internal Factors Affecting Pricing Decisions:Marketing Mix Customers Seek Produets that Give Them the Best value i Terms of Benetits Received forthe Price Paid Product Design Nonprice Distribution Positions Promotion
Price Product Design Distribution Promotion Nonprice Positions Internal Factors Affecting Pricing Decisions: Marketing Mix
Types of Cost Factors that Affect Pricing Decisions Fixed Costs Variable Costs (Overhead) Costs that don't Costs that do vary vary with sales or directly with the production levels. level of production. Executive Salaries,Rent Raw materials Total Costs Sum of the Fixed and Variable Costs for a Given Level of Production
Types of Cost Factors that Affect Pricing Decisions Total Costs Sum of the Fixed and Variable Costs for a Given Level of Production Variable Costs Costs that do vary directly with the level of production. Raw materials Fixed Costs (Overhead) Costs that don’t vary with sales or production levels. Executive Salaries, Rent
Costs Considerations Cost Per Unit at Different Levels of Production Per Period SRAC LRAC Quantity Produced per Day
Costs Considerations Cost per unit 1 2 3 4 SRAC LRAC Quantity Produced per Day 1,000 2,000 3,000 4,000 Cost Per Unit at Different Levels of Production Per Period
Types of Cost Factors that Affect Pricing Decisions As a firm gains experience in production,it learns how to do it better. The experience curve (or the learning curve)indicates that average cost drops with accumulated production experience. Strategy:company should price products low;sales increases;costs continue to decrease;and then lower prices further. Risks are present with this strategy
Types of Cost Factors that Affect Pricing Decisions ◼ As a firm gains experience in production, it learns how to do it better. ◼ The experience curve (or the learning curve) indicates that average cost drops with accumulated production experience. ◼ Strategy: company should price products low; sales increases; costs continue to decrease; and then lower prices further. ◼ Risks are present with this strategy
External Factors Affecting Pricing Decisions Market and Demand Competitors'Costs, Prices,and Offers Other External Factors Economic Conditions Reseller Needs Competitor Costs Government Actions Social Concerns
Market and Demand Competitors’ Costs, Prices, and Offers Other External Factors Economic Conditions Reseller Needs Government Actions Social Concerns External Factors Affecting Pricing Decisions Competitor Costs This ad by LCI International accuses its competitors of using unfair practices in pricing, hiding fees incurred by rounding up. Hidden fees, defined as “cramming” by the FCC, are the number one source of billing complaints among long-distance customers. Why is LCI focusing on this practice?