Marketing Lectures 18-20 (19 from previous week completed)
Marketing Lectures 18-20 (19 from previous week completed) 301
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This 4 page Class Notes was uploaded by Alex on Monday April 18, 2016. The Class Notes belongs to 301 at University at Buffalo taught by Dr. Dick in Spring 2016. Since its upload, it has received 50 views. For similar materials see Marketing in Business, management at University at Buffalo.
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Date Created: 04/18/16
MGM – Lectures 18 & 19 Pricing Strategy: o “Administered Pricing” – the price is set in advance, there is no negotiation (not a street market – in-store price is what it is) in the consumer market Participative Pricing – when there is negotiation, like in a street market (not a consumer market) o Purpose of Price: To capture the value of a product in the consumer’s mind. o Types of Competition: Price-Based – “lazy way to compete;” there is minimal creativity, not sustainable unless you are the lowest cost or can outlast competitors, and does not build brand equity Non-Price-Based – selling quality (E.g. – Apple) o Price/Quality Relationship: Price communicates value; the higher the price, the greater the worth, the higher the quality (what population believes, but is not always the case) o Pricing Objectives: Sales (dollar value and unit volume) lower price = higher sales; give up profit Profits (maximize (through fees, like Verizon) and/or satisfice (looking for a reasonable/satisfying profit)) Market Share (lower prices to gain market share) Stability (price change over time) Social Responsibility: Quantity Surcharge – product @ fair price Hidden Fees – credit cards as an example Predatory Pricing – illegal, price product very low to drive competition out of marketplace to make yourself the only one in the market (need deep pockets) o Pricing Approaches: Cost-Based: Types: o Breakeven Analysis: Quantity = Fixed Cost ÷ (Price – Unit Variable Cost); can be adjusted to solve for price o Cost-Plus; Two Variants: Price = TC + (% of TC) Price = TC + Fixed Fee o Markup (most common): % of selling price Price = Cost of Goods ÷ ((100 – Markup %)/100) Profit-Based: Target Profit Pricing: o (Total FC + Total VC + Total Profit) ÷ Total Number of Units Target ROI Pricing: o Profit = (Total FC + Total VC + (Investment X ROI)) ÷ Standard Number of Units Problems with Cost & Profit-Based Approaches include: internal focus, ignores demand and competition, assumes all produced is sold at the same price, and doesn’t track cost/unit changes (economies of scale) Demand-Based: Skimming – use with non-price elastic customers, start with a high price because those who really want it will pay more – lower price over time. Prestige Pricing – sell at low price, raise over time; results in high market penetration, little profit, but move more product Bundle Pricing – Multiple products sold in bundles (iPhone comes with headphones & charger) Demand-Minus Pricing – (manufacturer to retailer to consumer) o Wholesale Price = Retail Price X ((100- Markup%) ÷ 100) Chain Markup Pricing (CMP) – same as Demand-Minus, but with more players/longer chain (manufacturer, distributor, and retailer) o CMP = Retail Price X ((100 – Retail Markup %) ÷ 100) X ((100 – Distributor Markup %) ÷ 100) Competition-Based: Customary Pricing – customary price charged, followed by other companies setting similar prices cannot meet and agree on prices Leader/Follower Pricing – similar to customary pricing Competitive Bid – seeing what other charge before setting your price Value-Based (Next Week’s Lectures): Understanding use for product Analyze product benefits Analyze the product costs Cost/Benefit tradeoffs o Different customers place different values on different products because of the different benefits o Critical Strategic Pricing Ratio: Value = Total Perceived Benefit ÷ Price Some similar products have better benefits than others o Increase value by lowering prices (not sustainable generally) o Increase value by increasing total benefits (harder for competition to replicate) Value Use Pricing – multiple similar products, but one with better benefits in an attribute customers should be willing to pay more for the product with the better benefits (saw blade example from lecture) Parity Pricing – we divide the market equally (overall rating B price ) B (overall rating ÷ pBice ) B Psychology & Pricing: Reference Pricing – people are bad at guessing prices. Internal/External judgment of what a product should cost (Internal – value to customer, compared with other products; External – seller shows what price was/should be like on a “for sale” item) Compromise Effect – with a low, medium, and high price; high price is not placed for purchase, but rather to get consume to buy the middle-priced product – initial goal. Decoy Price – similar to compromise effect. It is the price you don’t expect people to pay (the higher price), but for no logical reason influences the buyers decision. o Low price = value-based purchased o Middle price = if removed becomes value v. prestige; bad deal b/c there is essentially no value o High price = prestige-based; combo of low & middle prices; gives feeling of more for your money (good deal) “Unbundling:” Similar to value in use; it is a breakdown of the product to show its many attributes and show the value of their benefits compared to the competition. – give impression of value reduction/more for money Citation:Dick, Alan, and Richard Lutz. "Pricing Strategy." University at Buffalo. Buffalo. 2016. 18 Apr. 2016. <https://ublearns.buffalo.edu/webapps/blackboard/content/listContent.jsp? course_id=_138266_1&content_id=_3613982_1>.
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