Ch 14– Pricing Concepts for Establishing Value(Value reflects the relationship between benefits and costs)Price- sacrifice a consumer is willing to make, only element of marketing mix that doesn’t generate costs.Most important factors in their purchase decisions marketers should view pricing decisions as a strategic opportunity to create value rather than as an afterthought to the rest of the marketing mixFive C’s of Pricing –> 1)Companies pricing objectives - Profit-oriented– implemented by focusing on target profit pricing(profitgoal as their overriding concern; uses price to stimulate a certain level of sales at a certain profit per unit), maximizing profits(relies primarily on economic theory), or target return pricing (firms less concerned with the absolute level of profits and more interested inthe rate at which their profits are generated relative to their investments; expressed as a percentage of sales.). Sales oriented- A company objective based on the belief that increasing sales will help the firm more than will increasing profits. Rarely is the lowest-price offering the dominant brand in a given market. Premium pricing- firm deliberately prices a product above the prices set for competing products to capture those customers who always shop for the best or for whom price does not matter. Competitor-oriented- company objective based on the premise that the firm should measure itself primarily against its competition. Competitive parity- set prices that are similar to those of their major competitors. Status quo pricing- changes prices only to meet those of the competition. Value is only implicitly considered in competitor-oriented strategies.Customer-oriented- objective based on the premise that the firm should measure itself primarily according to whether it meets its customers' needs.2)Customers - Demand curves and pricing- prestige products/services- purchase for status rather than theirfunctionality. When customers value increase in prestige more than price differential between prestige and products, prestige product attains greater value. Price Elasticity of Demand- measures how changes in a price affect the quantity of the product demanded. Price sensitive (elastic) when the price elasticity is less than − 1, when 1 percent decrease in price produces more than a 1 percent increase in the quantity sold. Price insensitive(or inelastic) when its price elasticity is greater than −1, when a 1 percent decrease in price results in less than a 1 percent increase in quantity sold. Factors Influencing PE of Demand- Income effect- change in the quantity of product demanded by consumers due to income change. Cross-price elasticity- %change in the quantity of Product A demanded compared to %change in price in Product B.
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