Ch 10

(types of costs) Fixed costs

also known as overhead are costs that do not vary with production or sales level. ex, rent, heat, interest, executive salaries.

Price

amount of money charged for a product or a service. It is the sum of all the values that customers give up to gain the benefits of having or using product/service.

3 Major Pricing Strategies

customer values based pricing, cost based pricing, and competition based pricing

Inelastic

If demand hardly changes with small change in price. Product usually unique or exclusive. Subs are hard to find bc of quality or something.

Elastic

If demand hella changes bc of price. Sellers will consider lowering price.

(types of market) Pure monopoly

Market is dominated by one seller. Seller may be government. ex. US postal service.

(pricing method) Cost Plus Pricing

also called markup pricing. Adding a standard markup to the cost of the product. Markup formula: markup price = unit cost/ 1-desired return on sales

Target Costing

Stats with an ideal selling price based on customer value considerations and then targets costs that will ensure that the price is met.

Total costs

Sum of the fixed and variable costs for any given level of production. Experience Curve - drop in the average cost with accumulated production experience also called "learning curve" if this happens costs fall and fall faster if the company makes and sells more during a given time period.

(pricing method) Break even Pricing

also called "target return pricing", when firm tried to determine the price at which it will break even or make the target return its seeking. Found by making "break even chart" which shows total cost and total revenue expected at different sales volume levels. "break even volume" is the total revenue and total cost curves cross. Break even volume formula: break even volume = fixed cost / price-variable cost

Value Added Pricing

does not mean simply charging what customs want to pay. They attach value added features and services to differentiate their offers and thus support their higher prices. (AMC theaters making mango margarita and charge higher for ticket pricing)

2 types of value based pricing

good value pricing and value added pricing

Cost Based Pricing

involves setting prices based on the costs of producing, distributing, and selling the product plus fair rate of return for its efforts and risk. But some companies like wal-mart become "low cost producers" so that they can set prices super low. But Apple pays higher costs so they can add value and claim higher prices.

(types of market) Pure competition

market consists of many buyers and sellers trading in a uniform commodity. ex. wheat, copper, or financial securities. No single buyer has effect on the going of market price. Sellers do not spend much time on marketing strategy such as pricing ,advertising, and sales promotion.

(types of market) Monopolistic Competition

market consists of many buyers and sellers who trade over a range of price rather than a single market price. Each firm is less affected by competitors pricing bc so many buyers. Sellers create different offers for different customer segments and use branding and advertising a lot.

(types of market) Oligopolistic competition

market consists of only few large sellers. ex. like wireless At&t, Verizon, Sprint and Tmobile. So each seller is alert and responsive to competitors pricing strategies and marketing moves.

Price elasticity

measure of sensitivity of demand to changes in price.

Good Value Pricing

offers right combo of quality and good services at fair price. (ex fast food using value meals) customers like "brand name for less". Type of good value pricing= EDLP (every day low pricing), it involves charging a constant everyday low price with few or no temporary price discounts ex. costco, walmart. Another type which contrasts= high low pricing, involves charging higher prices on an everyday basis but running request promotions to lower prices temporarily on selected items ex kohls, macys. They have frequent sale days, early bird savings, and bonus earning for store credit card users...true.

Value based pricing

only sets price based on customer perceptions of value. That then determine cost for design.

Cost based pricing

product driven. company designs product then adds up cost of making product and sets price to cover costs plus profit.

Demand Curve

relationship between the price charges and the resulting demand level. Shows number of units the market will buy in a given time period at different prices that might be charges.

Other factors that affect this shit

resellers, how they will react. Government, and social concerns.

Competition based pricing

setting prices based on competitors strategies, costs, prices, and market offerings. Consumers will base judgments of products value on prices that competitors charge for similar products. Should ask these questions: how does the companys market offering compare with competitors offerings in terms of customer value? Bc if higher value than company can charge more and opposite is true. How strong are current competitors and what are their current pricing strategies? If it has smaller competitors charging high prices then maybe you can charge lower to drive the weaker competitors from market. But if competitors too strong then maybe target unserved market with value added products at higher prices.

Customer Value Based Pricing

uses buyers perceptions of value as the key to pricing. Value based pricing means that the marketer cannot design a product and marketing program and then set price, must be instead considered with all other marketing mix variables before marketing program is set.

(types of costs) Variable costs

vary directly with the level of production. Tend to be the same for each unit produced.