Session8_Pricing_students

Session8_Pricing_students - Session 8 Pricing Strategies Ch...

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1 Session 8 Pricing Strategies Ch 11. Pricing Jooseop Lim Assistant Professor Department of Marketing John Molson School of Business Concordia University Comm 224 Marketing Management / Mark 201 Introduction to Marketing
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2 Agenda Nature and Importance of Price Setting Prices Cost-based pricing Value-based pricing Key Factors Influencing Pricing Decisions Internal factors External factors Price-Adjustment Strategies Discount and allowance pricing Segmented pricing Psychological pricing Promotional pricing Geographical pricing International pricing
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Most firms do a poor job at pricing Tactical pricing decisions = those decisions concerning the day-to-day Strategic pricing decision = the coordination of interrelated marketing, competitive, and financial decisions to set prices profitably. Pricing comments
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4 The Importance of Price Important points about pricing Price is the only marketing mix variable that generates revenue $ Price can be changed more quickly than the other marketing mix variables. Key to pricing: Should be consistent with other marketing mix Update prices based on market changes Customer-value oriented rather than cost oriented Consider internal and external factors. To the consumer. .. Price is the COST of obtaining desirable products and services To the seller. .. Price is REVENUE and PROFIT source
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5 Setting Prices Cost-based pricing Cost-plus pricing (markup pricing) Break-even Analysis and Target Profit Pricing (Target Return pricing) Value-based pricing (Target Costing) Cost-Based vs. Value-Based Pricing
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6 Cost-Based Pricing: Cost-plus pricing Cost-plus pricing is an approach that adds a standard markup to the cost of the product Markup pricing: p = unique cost + mark up x price P = uc / 1-mu Suppose, Variable cost per unit: $10, Fixed cost: $300,000 Expected unit sales: 50,000 The manufacturer’s unit cost = uc = vc +fc/q = 16$ Assume 20% markup on sales. Markup price = 20$ (16 / 1-0.2)
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7 Cost-Based Pricing : Cost-plus pricing Advantages Certainty about costs Pricing is simplified Minimize price competition (When all the companies use this pricing) Fairer to buyers and sellers Disadvantages Ignores current demand and competition Only works if the price actually brings in the expected level of sales
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8 Cost-Based Pricing : Breakeven Analysis or Target Profit Pricing Determine the price at which a firm will break even/make a certain target profit Sales Cost Volume (quantity) TotalRevenue = TotalCost Price x quantity = variable cost x quantity + fixed cost Q = FC / (p-vc) Total cost = VC x q + FC FC TC VC TR Be point BE volume = $300.000/(20-10) = 30,000
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9 Target Profit pricing: Determine the price that would yield its target rate of return on
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Session8_Pricing_students - Session 8 Pricing Strategies Ch...

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