AEM 240 Ch 13-15, 17 - Chapter 13 – Building the Price...

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Chapter 13 – Building the Price Foundation Price Equation Price = List Price – Incentives and Allowances + Extra Fees Price as an Indicator of Value Value Perceived Benefits / Price Value-pricing Simultaneously increasing product and service benefits while maintaining or decreasing price Profit Equation Profit = Total revenue – Total cost Price affects the quantity sold and also indirectly affects costs Step 1: Identify Pricing Objectives and Constraints Pricing Objectives – involve specifying the role of price in an organization’s marketing and strategic plans Profit Measured in terms of return on investment (ROI) or return on assets (ROA) 1) Managing for long-run profits objective Company gives up immediate profit in exchange for achieving a higher market share by developing quality products to penetrate competitive markets 2) Maximizing current profit objective Common in many firms because the targets can be set and performance measured quickly American firms are sometimes criticized for this short-run orientation 3) Target return objective
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A firm sets a profit goal, usually determined by its board of directors Another profit consideration for firms such as movie studios and manufacturers is to ensure that those firms in their channels of distribution make adequate profits Sales Objective related to sales revenue or unit sales can be translated more easily into meaningful targets than profit objectives Market Share The ratio of the firm’s sales revenues or unit sales to those of the industry Companies often pursue a market share objective when industry sales are relatively flat or declining Ex. Boeing in the late 1990s cut prices drastically to maintain 60 percent market share Unit Volume Firms that use this objective often sell multiple products at very different prices and need to match the unit volume demanded by customers with price and production capacity Survival Ex. FAO Schwartz could not compete with Wal-Mart and Target Social Responsibility Ex. drug pricing Pricing Constraints – factors that limit the range of prices a firm may set Demand for the Product Class, Product, and Brand The number of potential buyers affects the price a seller can charge So does whether the item is a luxury or a necessity
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Newness of the Product: Stage in the Product Life Cycle The newer the product and the earlier it is in its life cycle, the higher is the price that can be charged Collectables and fads are the exception Single Product versus a Product Line In a product line, the price of individual models has to be consistent with the others based on features provided Meaningful price differentials must communicate value to consumers Ex. Sony Walkman CD player Cost of Producing and Marketing the Product Cost of Changing Prices and Time Period They Apply Advantage of websites is that prices can be changed every minute Type of Competitive Markets Pure Monopoly Oligopoly Monopolistic Competition Many sellers who compete on nonprice factors Lots of advertising to differentiate firm’s products from competitors
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This test prep was uploaded on 12/03/2007 for the course AEM 2400 taught by Professor Mclaughlin,e. during the Fall '07 term at Cornell University (Engineering School).

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AEM 240 Ch 13-15, 17 - Chapter 13 – Building the Price...

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