Pricing and Establishing Value
Pricing and Establishing Value MKTG 3104
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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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