CHP 10: Price
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This 0 page Class Notes was uploaded by haemily on Sunday March 6, 2016. The Class Notes belongs to MKTG 2101 at Temple University taught by Craig Atwater in Fall 2015. Since its upload, it has received 12 views. For similar materials see marketing management in Marketing at Temple University.
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Date Created: 03/06/16
10 PRICE WHAT IS THE VALUE PROPOSITION WORTH 1EXPLAIN THE IMPORTANCE OF PRICING HOW MARKETERS SET OBJECTIVES FOR THEIR PRICING STRATEGIES YES BUT WHAT DOES IT COST WHAT IS PRICE assignment of value amt one must exchange to receive an offering 0 not always money 6 elementssteps of price planning STEP 1 DEVEL PRICING OBJECTIVES PROFIT allow for an 8 profit margin on all goods sold profit motivates shareholders to invest especially important for fad products short market life recovering investment quickly before customers lose interest SALESMARKET SHARE more sales more market share achieved through lower price or the firm s competitive advantage COMPETITIVE EFFECT alter pricing during first quarter to increase sales while a competitor intro s new product reduce the impact of competitors pricing changes CUSTOMER SATISFACTION alter price to match customer expectations want to retain customers for long term success IMAGE ENHANCEMENT alter pricing to reflect product s quality image price communicates quality and luxury products image high price status symbol 2 DESCRIBE HOW MARKETERS USE COSTS DEMANDS REV AND THE PRICING ENVIRONMENT TO MAKE PRICING DECISIONS COSTS DEMAND REV AND THE PRICING ENVIRONMENT k the actual process of price setting understanding quantitative qualitative factors that influence pricing strategy 0 costs demand rev pricing environment STEP 2 ESTIMATE DEMAND DEMAND CURVES all factors other than price remain the same the effect of price on quantity demanded law of demand price T demand i backwardbending demand curves 0 the exception 0 associated w prestige products increased price increases demand to a point after which demand bends back SHIFTS IN DEMAND upward O at any given price there is greater demand 0 wo lowering the price the company can sell more 0 ex goood ad campaign downward O at any given price less demand 0 ex product defect ESTIMATE DEMAND important 0 production plans marketing budgets based on demand step 1 est total demand 0 buyerspotential buyers X average amt each buyer will purch step 2 predict market share 0 based on estimated total demand PRICE ELASTICITY OF DEMAND price elast of demand customer sensitivity to changes in price price elasticity of demand percentage A quantity demand percentage A price sensitive changes in price largely not sensitive changes in price have little affects amt demanded greater than 1 effect on amount demanded steep demand curve ex lowering price of pizza by 10 will cause a 15 increase in demand price elast of demand 1510 15 O 15 is greater than 1 demand is elastic O lowering the price increases demand 0 increasing the price lowers demand DEMAND CURVES inelast demand 0 price rev change in the same direction 0 steep vertical demand curve 0 common for goods that are necessities affected by substitute goods 0 close sub elastic demand I less price competition A price of one product affects demand for another product MARKUPS MARGINS PRICING THRU THE CHANNEL most products are sold to wholesalers distributors jobbers each member of the channel of dist O amt added to cost of a product the price which the channel member will sell the product 0 the amount of the markup added to cover FC and generate profit STEP 3 DETERMINE COSTS 1 buy 2 markup VARIABLE FIXED COSTS perunit cost of production fluctuate do not vary w units produced depending on how many units a firm ex rent utilities equip produces more production volume discount lower CPU ex materials parts labor fixed CPU 0 decreases w increased production 0 increased production also lowers average FC and price needed to cover FC FCVCforasetof units produced BREAKEVEN ANALYSIS what sales volume needs to be reached before company begins to make profit of units produced and sold a given price to cover all costs total rev total 0 no loss or profit COSt breakeven point units total fixed costs contribution per unit to fixed costs breakeven point dollars total FC 1 VC per unit price contribution per unit product price aka rev per unit VC profit quantity above breakeven point x contribution margin MARKUPS MARGINS PRICING THROUGH THE CHANNEL MSRP price manufacturer sets for end consumer to pay STEP 4 EXAMINE THE PRICING ENVIRONMENT examine the external environment to set a price that 1 covers costs and 2 provides competitive advantage pricing decisions are interdependent 0 take into account demand costs and pricing environment THE ECONOMY recession 0 consumers are more price sensitive cut back on consumption firms may need to cut prices cover costs no profit to maintain sales levels 0 Starbucks raised prices of highsugar drinks and cut prices of most popular drinks inflation O marketers can T or i p ces O consumers insensitive to price increases THE COMPETITION pricing wars change consumers perceptions of a fair price industry structure of the firm oligopoly monopol comp pure comp influences pricing decisions goal maintain customer loyaltysales profitability GOV REGULATION two types of reg that affect pricing 0 regs for health care environment safety etc T production cost 0 industry speci c regs T cost of developing and producing regs that directly address prices 0 Credit Card Responsibility Disclosure Act 0 Affordable Care Act CONSUMER TRENDS culture and demographics bargain hunting strategic shopping INTERNATIONAL ENVIRONMENT marketing environment varies from country to country some companies can standardize pnces 0 ex Boeing cutting cost sacrificing safety some adapt prices esp when selling in developing countries 0 cheaper ingredients singleuse packaging 3 UNDERSTAND KEY PRICING STRATEGIES AND TACTICS IDENTIFY STRATEGIES AND TACTICS TO PRICE THE PRODUCT STEP 5 CHOOSING A PRICING STRATEGY P STRATEGIES BASED ON COST lt best choice pros simple to calc riskfree cons don t consider nature of TM demand competition productlife cycle product image also difficult to accurately estimate cost totals all costs for product plus markup P STRATEGIES BASED ON DEMAND demandbased pricing pricing is based on estimates of demand at different prices determined through customer surveys two demand based p strategies 0 identifying quality functionality and price before product is designed I determine price customers are willing to pay first then work backwards to design the product 0 diiierent prices to different customers to manage capacity and max rev I used by hospitality industry P STRATEGIES BASED ON COMPETITION near at above below minimizes price competition one firm sets its price and others follow with samesimilar prices P STRATEGIES BASED ON CUSTOMERS NEEDS firms focused on keeping longterm customers promise ultimate value NEW PRODUCT PRICING premium price for new intro new product w low price limited time low price for new product that may be lowered to encourage sales product to generate interest in the future used by firms focused on profit objectives opp of skimming win acceptance first make want to recover RampD promo profits later costs sell more in short frame to gain market share early successful when competitors discourage competitors from are slow to enter the market entering the market STEP 6 DEVEL PRICING TACTICS PRICING FOR INDIVIDUAL PRODUCTS PRICING FOR MULTIPLE PRODUCTS two part pricing 2 separate types of payment 2 goodsservices for a single ex yearlymonthly fees usage fees price usually less than total price of items bought separately payment pricing eliminates sticker shock by breaking price into smaller amounts products that only work when used together one low price one high DISTRIBUTION BASED PRICING FOB free on board who pays for the shipping title passes to buyer at FOB location cost of transporting product responsibility of seller pays for transportation costs which are the customer included in selling price standard shipping charge added to price regardless of customer location seller absorbs a transportation costs DISCOUNTING FOR CHANNEL MEMBERS members of the channel of distribution set reduced prices for large purchases percentages off sugg retail list price offered to customers to encourage quick price reduction offered seasonally payment encourages retailers wholesalers to buy seasonal products during the offseason 4 UNDERSTAND THE OPPORTUNITIES FOR INTERNET PRICING STRATEGIES PRICING ELECTRONIC COMMERCE tech consumer revolution changing pricing more efficiency C2C sites and 820 firms DYNAMIC PRICING STRATEGIES dynamic pricing price can be easily adjusted in response to changes in marketplace advantage of the internet price changes in brick and mortar stores are time consuming expensive charging different prices to different customers for same product depending on their location can greatly T pro t legal as long as prices aren t based on demographic info race gender etc ethical risky ONLINE AUCTIONS eBay 0 C20 0 open auction FREEMIUM PRICING STRATEGIES basic version of a product is free company charges for upgraded version ex spotify free version is supported by ads PRICE ADVANTAGES FOR ONLINE SHOPPERS consumers have more control over buying process are more price sensitive more comparison shopping 5 DESCRIBE THE PSYCHOLOGICAL LEGAL AND ETHICAL ASPECTS OF PRICING PSYCHOLOGICAL LEGAL ETHICAL ASPECTS OF PRICING PSYCHOLOGICAL ISSUES IN SETTING PRICES BUYERS PRICING EXPECTATIONS consumers base price on what is customaryfair differ across countries and cultures INTERNAL REFERENCE PRICES set price in consumers minds that is used as a reference point competitors prices used as advertising strategy 0 two products similar in price customer is likely to buy less expensive option assimilation effect 0 two products different in price customer is likely to believe there is a difference in quality and go for the more expensive item contrast effect PRICEQUALITY INFERENCES price used an indicator of quality inference judgement made wo direct evidence priceplacebo effect higher prices higher quality more pleasure PSYCHOLOGICAL PRICING STRATEGIES ODDEVEN PRICING prices ending in odd numbers 99 rather than 00 result in more sales 0 except for tickets sporting events quotes luxury items price presentation 0 prices presented w dollar signsthe word dollar generate fewer sales I 9 is better than 9 selling different items in a product line at different price points satisfies multiple market segments maximize profits PRESTIGE PRICING when higher prices generate more sales LEGAL ETHICAL CONSIDERATIONS IN 32C PRICING DECEPTIVE PRICING PRACTICES BAIT SWITCH advertise an item at a low price to lure customers in and switch them to a higherpriced item 0 illegal difficult to enforce LOSSLEADER PRICING UNFAIR SALES ACTS advertise low prices customers in the store for the low price items will buy other reg price items setting low prices to attract customers k prohibit sale of products below cost to protect small biz from big fish who have the resources to offer products low prices LEGAL ISSUES IN BZB PRICING ILLEGAL BZB PRICE DISCRIM RobinsonPatman Act 0 prevent sale of same product at different prices if the practice lessens competition 0 prohibits offering of extras discounts rebates to some but not all 0 applies only to resellers firms working together to keep prices at a certain level high horizontal O illegal Sherman Antitrust Act 1890 0 firms in the same industry work together to charge the same price vertical 0 manufacturerswholesalers try to force retailers to charge a certain price retailer has to charge the sugg retail price firm sets low price to drive out competitors and position themselves as a monopoly so they can then increase prices