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Chapter 10: Pricing the Product by Mind Map: Chapter 10: Pricing the Product
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Chapter 10: Pricing the Product

1: Develop Sales or Market Share Objectives

Profit Objectives

important to motivate shareholders and banks to invest

Sales or Market Share Objectives

Competitive Effect Objectives

pricing plan is intended to affect competitor\s marketing

Customer Satisfaction Objectives

don't just focus on short-term profit

Image Enhancement Objectives

Prestige Products

2. Estimate Demand

Law of Demand

If price falls, customers will buy more and vice versa

Prestige Products

Shifts in Demand

When demand rises, the curve shifts upwards/right

Estimating Demand

production scheduling, marketing budgeting and planning all depend on estimated demand

Estimates of potential Sales

Price Elasticity of Demand

Measure of sensitivity of demand to price Percentage Change in Quantity demanded / percentage change in price Hard to predict, needs market research

E > 1: Elastic Demand

E < 1: Inelastic Demand


Product with close substitute is very elastic; when price rises, consumers just switch

Cross-elasticity of Demand


3: Determine Costs

Variable Costs

Fixed Costs

Average Fixed Costs

Break-Even Analysis

Contribution per Unit

Target Profit, Added to FC, Added to VC on a per-unit basis

Marginal Analysis

Marginal Costs

Marginal Revenue


4: Evaluate the Pricing Environment


business cycle, inflation, economic growth, consumer confidence...




customer's perception of fair price depends on other products in the market

Price Wars

Industry Structures, Oligopoly, Monopoly, Perfect Competition

Consumer Trends

5: Choose a Price Strategy

Based on Cost

simple to calculate and relatively risk free

Cost-Plus pricing

Based on Demand

price is based on estimated demand at different price levels

Target Costing

Yield Management Pricing

Based on Competition

Based on Customer Needs

choose price that pleases customers, less interested in short term profit but more in retaining customers

Value Pricing / Everyday Low Pricing

New Product Pricing

Skimming Price

Penetration Pricing *hihihi*

Trial Pricing

6: Develop Pricing Tactics

Pricing for Individual Products

Two-Part Pricing

Payment Pricing

Pricing for Multiple Products

Price Bundling

Captive Pricing

Distribution Based Pricing

Free on Board (FOB), FOB origin, FOB delivered

Base-point Pricing

Uniform Delivered Pricing

Freight absorption pricing

Discounting for Channel Members

List Price / Recommended Retail Price

Trade or functional discounts

Quantity Discount, Cumulative Quantity Discount, Rebate, Non-cumulative quantity discount

Cash Discount

Seasonal Discount


the value customers give up in exchange for the product


how much of a product are customers willing to buy at a certain price?

Pricing and Electronic Commerce

Dynamic Pricing Strategies

seller can easily adjust price to meet changes in the market very easy online when compared to in stores


Pricing Advantages for Online Shoppers

Search Engines

Detailed Information

Lower's costs through time saving

Psychological Issues in Pricing

Buyer's pricing expectations

Internal Reference Prices, Reference Pricing Strategies, Assimilation Effect, Contrast Effect

Price/Quality Inference

Psychological Pricing Strategies

Odd-Even pricing, Odd, Even

Price Lining

Legal and Ethical Considerations in Pricing


lure customers in with cheap offer that is almost impossible to getthen salespeople try to get the customer to buy something else instead

Loss Leaders

Advertise items at very low price to get people into your shop because they will also buy other items while they are there

Price Fixing

Horizontal Price Fixing, Cartel

Vertical Price Fixing

Predatory Pricing