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Exam_3_Chapter_12 - Chapter 12 Pricing Products and...

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Chapter 12: Pricing Products and Services * Travel companies have beaten the dot-com odds by providing two key benefits to consumers: 1. Saving time 2. Saving money Nature and Importance of Price * The price paid for goods and services comes in many names- premium, tuition, fee, dues What is a Price? * Price : the money or other considerations, including other goods or services, exchanged for the ownership or use of a good or service. * The practice of exchanging goods and services for other goods and services rather than for money is called barter. * One new twenty-first century pricing tactic is to use special fees and surcharges to raise the real price of something. Buyers are more willing to pay extra fees than a higher list price, so sellers use add-on charges as a way of having the consumer pay more without raising the list price. * The different factors that increase or decrease the price are put together in a price equation FINAL PRICE = LIST PRICE - (INCENTIVES + ALLOWANCES) + EXTRA FEES Price as an Indicator of Value * Price influences consumers' perception of overall quality and ultimately its value to consumers. "The higher the price, the higher the quality" * From a consumers' standpoint, price is often used to indicate value when price is compared with benefits of the product. At a given price, as perceived benefits increase, value increases. * Value pricing is the practice of increasing product and service benefits while maintaining or decreasing price. ex- supersizing at a fast food restaurant-- the value comes from getting more bang for your buck. Price in the Marketing Mix * Price has a direct effect on a firm's profits Profit Equation Profit = Total Revenue - Total Cost = (Unit Price X Quantity Sold) - Total Cost * Price affects the quantity sold. Since the quantity sold sometimes affects a firm's costs because of efficiency of production, price also indirectly affects costs. Thus, pricing decisions influence both total revenue (sales) and total cost, which makes pricing one of the most important decisions marketing executives face. General Pricing Approaches * Find an approximate price level to use as a reasonable starting point is the key * 4 common approaches: 1. Demand-oriented 2. Cost-oriented 3. Profit-oriented 4. Competition-oriented Demand-Oriented Approaches * Emphasize factors underlying expected customer tastes and preferences more than such factors as cost, profit, and competition when selecting a price level
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* Skimming Pricing : setting the highet initial price that customers really desiring the product are willing to pay. Customers are not price sensitive. As the demand of these customers is satisfied, the firm lowers the price to attract another, more price-sensitive segment. * Penetration Pricing : setting a low initial price on a new product to appeal immediately to the mass market. The exact opposite of skimming price. Once the company has earned back the money spent on research and development and introductory promotions, it uses penetration pricing to appeal to a broader-segment of the population and increase market share.
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