MKTG Chapter 11
cost oriented pricing approaches
a price setting stresses the cost side of the pricing problem not the demand size. price is set by looking at the production and marketing costs and then adding enough to cover direct expenses, overhead, and profit
profit oriented pricing approaches
balance both revenues and costs to set price
price discrimination
clayton act. charging different prices to different buyers for good or like grade and quality
pricing constraints include:
demand, newness, cost of production/ marketing, competitors price, legal and ethical considerations
standard markup pricing
entails adding a fixed percentage to the cost of all items in a specific product class. Varies depending the type of retail stores and the product involved.
target pricing
estimate price that the ultimate consumer will pay for a product, then work backwards to determine what price they can charge to the wholesalers. Adjusting competitions and features of a product to achieve the target price to consumers
unit variable cost
expressed on a per unit basis = Variable cost/ quantity
pricing constraints
factors that limit the range of prices a firm may set
target profit pricing
firms sets an annual target of a specific dollar volume of profit
pricing objectives
involve specifying the role of price in an organization's marketing and strategic plans
odd even pricing
involves setting prices a few dollars or cents under an even number.
cost plus pricing
involves summing the total unit cost of providing a product or service and adding a specific amount to the cost to arrive at a price
price =
list price - incentives and allowances + extra fees
value
perceived benefits/ price
price elasticity of demand
percentage change in quantity demanded relative to a percentage change in price
deceptive pricing
practice of charging a very low price for a product with the intent of driving competitors out of business.
customer pricing
products where tradition, a standardized channel of distribution, or other competitive facts dictate the price
price=
profit + costs / product sold
profit equation
profit = total revenue - total costs
unit volume
quantity produced or sold, as a pricing objective
market share
ratio of the firm's sales revenue or unit sales to those of the industry
discounts
reductions from list price that a seller gives a buyer as a reward for some activity of the buyer that is favorable to the seller
about at or below market price
self-explanatory
target return on sales pricing
set prices that will give them a profit that is a specified percentage
one price policy
setting one price for all buyers of a product or service.
prestige pricing
settting a high price so that quality- or status-conscious consumers will be attracted to product and buy it
competition oriented pricing
stress competitors or the market
variable costs
sum of the expenses of the firm that vary directly with the quantity of a product hat is produced and sold
yield management pricing
the charging of different prices to max revenue for a set amount of capacity at any given time
bundle pricing
the marketing of two or more products in a single package price.
price
the money or other considerations exchanged for the ownership or use of a product or service.
fixed costs
the sum of the expenses of a firm that are stable and do not change with the quantity of product that is produced or sold
total costs
the sum of their fixed and variable costs
demand oriented approach
underlying expect customer tastes and preferences more heavily than such factors are cost, profit, and comp when selecting a price level
select an approximate price level
1. consider pricing objectives 2. choose among general pricing approaches 3. the price is then analyzed in terms of cost, volume and profit relationships
3 key factors that influence demand for a product
1. consumer taste 2. price and availability of similar products 3. consumer income
price level
1. demand oriented 2. cost oriented 3. profit oriented 4. competition oriented
skimming is effective when:
1. enough prospective customers are willing to buy the product immediately at the high initial price to make these sales profitable 2. the high initial price will not attract competitors 3. lowing the price has only minor effect on increasing sales volume and reducing unit costs 4. customers interpret the high price as a signal of high quality
firm using penetration pricing may:
1. maintain the initial price for a time to gain profit lost from its low introductory level 2. lower the price further, counting on the new volume to generate the necessary profit
3 different objectives related to a firms profit
1. managing for long run profits (immediate profit by developing quality products to penetrate competitive markets 2. maximizing current profit (targets can be set and performed measure quickly, quarterly) 3. target return (sets profit goal)
conditions of penetration pricing:
1. many segments of the market are price sensitive 2. low initial price discourages competitors from enter the marketing 3. unit production and marketing cost fall dramatically as production volumes increase
4 kinds of discounts
1. quantity 2. seasonal 3. trade 4. cash
setting a final price steps
1. select an approximate price level 2. set the list or quoted price 3. make special adjustments to the list or quoted price
4 cost concepts in pricing decisions
1. total cost 2. fixed cost 3. variable cost 4. unit variable cost
break even analysis
analyzes the relationship between total revenue and total cost to determine profitability. = fixed cost/ unit price - unit variable cost
elastic demand
exists when a 1% decrease in price produces more than 1% increase in quantity demanded, thereby actually increasing total revenue
demand curve
graph that relates the quantity sold and price, showing the max number of units that will be sold at a given time
skimming price
highest initial price that customers really desiring the product are willing to pay. Then price goes down
price fixing
set prices for a product among firms. illegal under the sherman act. horizontal price fixing: 2+ competitors collude to explicitly or implicitly set prices vertical price fixing: controlling agreements between independent buyers and sellers whereby sellers are required to not sell products below a minimum retail price
target return on investment pricing
set prices to achieve a return on investment target such as percentage that is mandated by its BOD or managers
penetration price
setting a low initial price on a new product to appeal immediately to the mass market
flexible-price policy
setting different prices for products and services depending on individual buyers and purchase situations in light of demand, cost, and competitive factors
loss leader pricing
special promo retail store deliberately sell a product below its price to attract attention to it. not to increase sales but to attract customers in the hopes they will buy other products
barter
the price of exchanging products and services for other products and services rathe than for money
total cost
total expense incurred by a firm in producing and marketing a product. sum of fixed and variable costs
Total revenue
total money received from the sale of a product unite price X quantity sold
market price
what customers are generally willing to pay
inelastic demand
when a 1% decrease in price produces less than a 1% increase in quantity demanded, thereby actually decreasing total revenue