Final exam study guide.docx - Chapter 14 Notes(Price Based Price is the only element of the marketing mix that does not generate costs but instead

Final exam study guide.docx - Chapter 14 Notes(Price Based...

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Chapter 14 Notes (Price Based) Price is the only element of the marketing mix that does not generate costs, but instead generates revenue 5 C’s of pricing: Competition, Costs, Company objectives, Customers, and Channel Members Firm’s Implement a profit orientation specifically by focusing on target profit pricing, maximizing profits, or target return pricing. o To meet this targeted profit objective, firms use price to stimulate a certain level of sales at a certain profit per unit. o Maximizing profits theory: if a firm can accurately specify a mathematical model that captures all the factors required to explain and predict sales and profits, it should be able to identify the price at which its profits are maximized. o Target return pricing and employ pricing strategies designed to produce a specific return on their investment, usually expressed as a percentage of sales. Premium pricing means the 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 Price Elasticity of Demand= % change in quantity demanded / % change in price A product or service is price sensitive (or elastic) when the price elasticity is less than − 1, that is, when a 1 percent decrease in price produces more than a 1 percent increase in the quantity sold Consumers are generally more sensitive to price increases than to price decreases The greater the availability of substitute products, the higher the price elasticity of demand for any given product will be Monopolistic competition occurs when there are many firms competing for customers in a given market but their products are differentiated With pure competition, there is a large number of sellers of standardized products or commodities that consumers perceive as substitutable A gray market employs irregular but not necessarily illegal methods; generally, it legally circumvents authorized channels of distribution to sell goods at prices lower than those intended by the manufacturer With an everyday low pricing (EDLP) strategy, companies stress the continuity of their retail prices at a level somewhere between the regular, non-sale price and the deep-discount sale prices their competitors may offer A high/low pricing strategy, which relies on the promotion of sales, during which prices are temporarily reduced to encourage purchases A reference price, which is the price against which buyers compare the actual selling price of the product and that facilitates their evaluation process Firms using a market penetration strategy expect the unit cost to drop significantly as the accumulated volume sold increases, an effect known as the experience curve effect Known as price skimming, appeals to these segments of consumers who are willing to pay the premium price to have the innovation first
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