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Pricing and Establishing Value

by: Abby Butterfield

Pricing and Establishing Value MKTG 3104

Abby Butterfield
Virginia Tech
GPA 3.55

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About this Document

These notes are from Ch 14's lecture on the relationship between price and value. (Wed) March 30, 2016
Marketing Management
Donna Wertalik
Class Notes
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This 3 page Class Notes was uploaded by Abby Butterfield on Monday May 2, 2016. The Class Notes belongs to MKTG 3104 at Virginia Polytechnic Institute and State University taught by Donna Wertalik in Spring 2016. Since its upload, it has received 77 views. For similar materials see Marketing Management in Marketing at Virginia Polytechnic Institute and State University.

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Date Created: 05/02/16
Pricing and Establishing Value (Ch 14) 3.30.16 Presenters: TradeVersity, GenFKD Youtube examples: Self-filling water bottle, Hologram Value/Price Taste Test: Watertest (Kroger, Dasani, Fiji) Value —> Price Market: Aggregate perceived value “Sharktank” and Instagram —> “Valued at… $x billion" Five C’s of Pricing 1. Competition (Blacksburg: Moe’s, Chipotle, Q-doba) 1. Less price competition: 1. Monopoly (One firm controls market) 2. Monopolistic Comp. (Many firms, many markets) 2. More price competition: 1. Oligopoly (Few firms control market) 2. Pure Comp. (Many firms, same prices) 2. Costs (Chipotle - Organic or more natural — Ecoli outbreak) 1. Variable (Change w/ volume) 2. Fixed (Flat regardless of volume) 3. Total 3. Company objectives 1. Profit-oriented 1. Focus on margin 2. Problem: 18% rule is not always achievable 2. Sales-oriented 1. Set price low to motivate higher quantity of sales  3. Competitor-oriented 1. Discourage competitors by offering very low prices 2. Problem: Value is compromised to offer lowest prices 4. Customer-oriented 1. Matching prices to customer expectations, offer loyalty programs 4. Customers 1. Demand increases as price decreases 2. Esteemed products don’t always have downward sloping demand curves 1. Price skepticism 3. Elasticity 1. High/Elastic: Demand is sensitive to price changes 1. Don’t care about product, will take price 2. Decreasing price will increase revenue 2. Low/Inelastic: Demand is not as affected with changes in price 1. Don’t care about price, will take product 2. Increasing price will increase revenue 3. Consumers are less sensitive to price increases for necessities 4. Influencing factors: 1. Income Effect 2. Substitution Effect 3. Cross-Price elasticity 5. Channel members 1. Manufactures, wholesalers, retailers 2. Not consumers Apple Pricing • Version Pricing ◦ Different prices for different generations and features ◦ Example: 5C vs 5S • Value dilutes price: When you’ll pay more for more value Break-Even Analysis and Decision Making • Positive ROI as determinant Everyday Low Pricing (EDLP) vs. High/Low Pricing 1. Create value in diff ways 2. EDLP saves search costs of finding overall prices 3. High/low provides... New Product Pricing Strategies 1. Market penetration pricing 1. Saturating market by providing low price (Ex. White Out shirts for $5) 2. Making price not a Barrier to Entry 2. Price skimming 1. Upscale product selling for higher price (Ex. Godiva hot chocolate) Legal Aspects and Ethics of Pricing 1. Price discrimination 2. Deceptive or illegal price advertising 3. Predatory pricing 1. Det. price based on competitors 4. Price fixing Purchasing Power Parity: Big Mac Index 1. Ideal: Identical prices across markets, allowing for currency changes 2. Reality: Prices are affected by perceived value/desire for good (Ex. McDonald’s in US vs India) 3. IS IT A RELIABLE INDICATOR? No. It’s just an indicator of Purchase Pricing Parity. (Making identical basket of goods the same price regardless of denomination value.) Alternative Pricing Strategies Cost plus: Manufacturing + Small margin Target profit: Achieve specific % margin Breakeven:  Perceived: What customer will pay Sealed bidding: B2B/house purchases Internet based: Comparison with others


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