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Ch 14, Pricing Notes

by: Abby Butterfield

Ch 14, Pricing Notes MKTG 3104

Abby Butterfield
Virginia Tech
GPA 3.55
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Marketing Management, Donna Wertalik These notes are from the class on pricing from the day we had the water test and discussed valuation.
Marketing Management
Donna Wertalik
Class Notes
Marketing Management Pricing




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This 3 page Class Notes was uploaded by Abby Butterfield on Friday April 1, 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 22 views. For similar materials see Marketing Management in Marketing at Virginia Polytechnic Institute and State University.

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Date Created: 04/01/16
Pricing and Establishing Value (Ch 14) March 30, 2016 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 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?** ⁃ Very few companies have universal/equalivalent prices across countries 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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