chapter 13 mkt120 pricing
DESCRIPTION
TRANSCRIPT
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LEARNING OBJECTIVES
Learning Objectives
Why should firms pay more attention to setting prices?
What is the relationship between price and quantity sold?
Why is it important to know a product’s break-even point?
Who wins in a price war?
How has the Internet changed the way some people use price to make purchasing decisions?
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Price and Value
What’s the most you will pay for a pair of jeans?
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Price
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Price is a Signal
PriceGrabber.com Website
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The Role of Price in the Marketing Mix
Price is the only marketing mix element that generates revenue
Price is the only marketing mix element that generates revenue
Price is usually ranked as one of the most important factors in purchase decisions
Price is usually ranked as one of the most important factors in purchase decisions
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The 5 C’s of Pricing
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1st C: Company Objectives
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Profit Orientation
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Sales Orientation
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Competitor Orientation
Competitive parity Status quo pricing Value is not part of this pricing strategy
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=
Focus on customer expectations by matching prices to customer
expectations
Focus on customer expectations by matching prices to customer
expectations
automotive.com Website
Customer Orientation
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2nd C: Customers
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Demand Curves and Pricing
Knowing demand curve enables to see relationship
between price and demand
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Demand Curves
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Price Elasticity of Demand
Elastic (price sensitive)
Inelastic (price insensitive)
Consumers are less sensitive to price increases for necessities
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3rd C: Costs
Variable Costs Vary with production
volume
Fixed Costs Unaffected by production
volume
Total Cost Sum of variable and fixed
costs
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Break Even Analysis and Decision Making
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4th C: Competition
Subway Commercial
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5th C: Channel Members
Manufacturers, wholesalers and retailers can have different perspectives on pricing strategies
Manufactures must protect against gray market transactions
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Macro Influences on Pricing
The Internet Increased price
sensitivity Growth of online
auctions
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Review Only
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Economic Factors
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What are they trying to accomplish with this ad?
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Price Elasticity of Demand
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Factors Influencing Price Elasticity of Demand
Wal-Mart Commercial
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Substitution Effect
Meet Pete, college student on a budget:
Old Spice Sport Deodorant user
At the store he notices that Old Spice is more expensive
Pete decides to give another brand a try and save money
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Cross-Price Elasticity
Meet Kendra, self-supporting college student:
Buys a new printer on sale for a great price
Learns it requires special ink cartridges that cost more than the printer
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Break Even Analysis
Total Variable Cost = Variable Cost per unit X QuantityTotal Cost = Fixed Cost + Total Variable Cost
Total Revenue = Price X Quantity
Fixed CostsContribution per unit
Break-Even Point (units) =
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Check Yourself
1. What are the five Cs of pricing?
2. Identify the four types of company objectives.
3. What is the difference between elastic versus inelastic demand?
4. How does one calculate the break-even point in units?
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1. How have the Internet and economic factors affected the way people react to prices?
Check Yourself
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Glossary
Break-even analysis enables managers to examine the relationships among cost, price, revenue, and profit over different levels of production and sales.
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Glossary
Cross-price elasticity is the percentage change in the quantity of Product A demanded compared with the percentage change in price in Product B.
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Glossary
Fixed costs are those costs that remain essentially at the same level, regardless of any changes in the volume of production.
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Glossary
Income effect is the change in the quantity of a product demanded by consumers due to a change in their income.
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Glossary
The maximizing profits strategy assumes that if a firm can accurately specify a mathematical model that captures all the factors required to explain and predict sales and profits, it should be able to identify the price at which its profits are maximized.
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Glossary
Price is the overall sacrifice a consumer is willing to make to acquire a specific product or service.
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Glossary
The substitution effect refers to consumers’ ability to substitute other products for the focal brand.
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Glossary
Target profit pricing is implemented by firms to meet a targeted profit objective. The firms use price to stimulate a certain level of sales at a certain profit per unit.
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Glossary
Target return pricing occurs when firms employ pricing strategies designed to produce a specific return on their investment, usually expressed as a percentage of sales.
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Glossary
The total cost is the sum of the variable and fixed costs.
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Glossary
Variable costs are the costs that vary with production value.
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