chapter 13,14 outline

chapter 13,14 outline - Chapter 13/14 Building the Price...

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Chapter 13/14: Building the Price Foundation, Arriving at the Final Price I. Nature and Importance of Price What is Price? o Money or other goods/services exchanged for ownership or use of a good/ service o Barter: exchanging goods/services for other goods/services rather than money o Price equation: contains factors that increase or decrease price o Final Price = List price – (Incentives + Allowances) + Extra Fees Price as an Indicator of Value o Value: ratio of perceived benefits to price Value = (Perceived Benefits)/Price o As perceived benefits increase, value increases o Value-pricing: simultaneously increasing product and service benefits while maintaining or decreasing price Price in the Marketing Mix o Profit Equation Profit = Total revenue – Total Cost Profit = (Unit Price x Quantity Sold) – (Fixed Cost + Variable Cost) o Price affects quantity sold, which affects a firm’s costs, so price affects cost Pricing influences both total revenue and total cost Pricing steps: o Identify pricing objectives and constraints o Estimate demand and revenue o Determine cost, volume, profit relationships o Select appropriate price level o Set list or quoted price o Make special adjustments Step 1: Identify Pricing Objectives and Constraints Pricing Objectives o Profit Profit is often measured by Return on Investment or Return on Assets Objectives related to profit: Managing for long-run profits o Company gives up immediate profit in exchanging for higher market share
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o Develop quality products to penetrate competitive markets over the long term o Products priced relatively low compared to their cost to develop o Firm expects to make greater profits later because of high market share Maximizing current profit o Targets can be set quickly and performance can be measured quickly Target return o Firm sets a profit goal, usually determined by Board of Directors o Sales Increasing sales revenue will lead to increases in market share and profit Cutting prices on one product may increase that product’s sales revenue but decrease that of a related product o Market Share Ratio of sales revenue to those of the industry Pursue a market share objective when industry sales are flat or declining o Unit Volume Quantity produced or sold Sell multiple products are very different prices Match demand with price and production capacity o Survival Profits, sales, market share are less important than survival Inability to match price cuts by discount retailers o Social Responsibility Forgo higher profit on sales and recognize obligations to customers and society in general Example: drug pricing Pricing Constraints o Demand for the Product Class, Product, and Brand Number of potential buyers for each Luxury vs. necessity Greater demand, higher price that can be set o Newness of the Product/Stage in Product Life Cycle Newer the product, the higher the price you can charge
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chapter 13,14 outline - Chapter 13/14 Building the Price...

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