Chapter 11: Pricing Concepts and Strategies: Establishing ValueThe Importance of Pricing-Price: Overall sacrifice a consumer is willing to make to acquire a specific g/s (monetary and nonmonetary) Benefits vs. Sacrifice necessary to obtain it, then make purchase decision -Key to successful pricing: Match g/s with consumer’s value perceptions -Price set too low may signal low quality, poor performance, or other negative attributes about g/s want high value instead, which may come with high or low price depending on bundle of benefits the g/s delivers-Price is only marketing mix that generates revenue = must be perfect or no sales -Price is most challenging 4 P’s to manage – should view pricing decisions as strategic opportunity to create value rather than afterthought to rest of marketing mix The Five Cs of PricingCompany Objectives-Each firm embraces objective that fits where management thinks firm needs to go to be successful – how firm intends to grow Profit Orientation-Profit Orientation: Implemented by focusing on target profit pricing, maximizing profits, or target return pricing -Target Profit Pricing: Pricing strategy implemented by firms when they have a particular profit goal as their overriding concern; uses price to stimulate a certain level of sales at a certain profit per unit -Maximizing Profits Strategy: Mathematical model that captures all the factors required to explain and predict sales and profits, which should be able to identify the price at which its profits are maximized -Target Return Pricing: Pricing strategy implemented by firms less concerned with the absolute level of profits and more interested in the rate at which their profits are generate relative to their investments; designed to produce specific return on investment, usually expressed as % ofsales -E.g. Institute companywide policy that all products must provide for at least an 18% profit margin to reach particular profit goal for firmSales Orientation-Sales Orientation: Company objective based on belief that increasing sales will help firm more than will increasing profits -Some firms want more market share b/c they think it better reflects their success relative to market conditions than sales alone May set low prices to discourage new firms from entering market, encourage current firms to leave market, and take market share away from competitors Market share objective doesn’t always imply setting low prices find more resources at oneclass.comfind more resources at oneclass.com
Gain market share by offering high quality prouct at fair price Competitor Orientation-Competitor Orientation: Company objective based on premise that the firm should measure itself primarily against its competition -Competitive Parity: Firm’s strategy of setting prices that are similar to those of major competitors -Value only implicitly considered – competitors may be using value as part of pricing strategies so copy strategy might provide value Customer Orientation-Customer Orientation
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- Fall '11