Marketing Prelim 3 Review - Marketing Prelim 3 Review Ch....

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Marketing Prelim 3 Review Ch. 13 Building the Price Foundation I. Nature and Importance of Price a. Final price= list price – (incentives + allowances) + extra fees b. Value= perceived benefits/ price c. Value pricing- the practice of simultaneously increasing product and service benefits while maintaining or decreasing price d. Profit equation: i. Profit = total revenue – total cost ii. = (unit price x quantity sold) – (fixed cost + variable cost) e. Six steps to setting prices i. Identify pricing objectives and constraints 1. Objectives like profit, market share, and survival 2. Constraints like demand for product class and brand, newness, costs, and competition ii. Estimate demand and revenue 1. demand estimation 2. sales revenue estimation 3. price elasticity estimation iii. Determine cost, volume, and profit relationships 1. cost estimation 2. marginal analysis, in relation to profit 3. break-even analysis, in relation to profit iv. Select an approximate price level 1. demand oriented approaches 2. cost oriented approaches 3. profit oriented approaches 4. competition oriented approaches v. Set list or quoted price 1. one price or flexible price 2. company, customer, and competitive effects 3. incremental costs and revenue vi. Make special adjustments to list or quoted price 1. discounts 2. allowances 3. geographical adjustments II. Step 1: Identify Pricing Objectives and Constraints a. Pricing Objectives - involve specifying the role of price in an organization’s marketing and strategic plans. i. Profit 1. measured in return on investment (ROI) or return on assets (ROA) 2. 3 different objectives relate to a firms profit: a. managing for long run profits- exchanging immediate profit for higher market share. products
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are priced relatively low compared to their cost to develop, but the firm expects to make greater profits later bc of its higher market share. b. maximize current profit- for a quarter or year c. target return- occurs when a firm sets a profit goal (such as 20% for pretax ROI) usually determined by its board of directors ii. Sales 1. increase in sales revenue should increase market share and profit iii. Market share 1. companies pursue this objective when industry sales are flat or declining iv. Volume v. Survival vi. Social responsibility b. Pricing constraints - factors that limit the range of prices a firm may set i. Demand for product class, product, and brand ii. Stage in PLC iii. Single product vs. product line iv. Cost floor v. Cost of marketing and changing vi. Legal and ethical considerations vii. Competition 1. pure competition- many sellers who follow the market price for identical, commodity products 2. monopolistic competition- many sellers who compete on non-price factors 3. oligopoly- few sellers who are sensitive to each other’s prices 4. pure monopoly- one seller who sets the price for a unique product III. Step 2: Estimate Demand and Revenue a. Demand Curve- graph relating to quantity sold and price i. 3
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Marketing Prelim 3 Review - Marketing Prelim 3 Review Ch....

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