Chapter 14- pricing concepts for establishing value. The five c’s of pricing: 1) Company objectives- different firms embrace very different goals; these goals should spill down to the pricing strategy, such that the pricing of a company’s products and services should support and allow the firm to reach its overall goals. Each firm embraces objectives that seem to ft with where management thinks the firm needs to go to be successful, in whatever way it defines success. Reflect how the firm intends to grow. Profit orientation: a company objective that can be implemented by focusing on: Target profit pricing: have a particular profit goal as their overriding concern. Maximizing profits: economic theory; capture all factors required to explain and predict sales and profits, it should be able to identify the price at which its profits are maximized. Target return pricing: less concerned with absolute level of profits and more interested in the rate of which their profits are generated relative to their investments; designed to produce a specific return on investment, usually percentage of sales. Sales orientation: believe that increasing sales will help the firm more than will increasing profits. Premium pricing: firm deliberately prices a product above the prices set for competing products so as to capture those customers who always shop for the best or for whom the price does not matter. Companies can gain market share by offering a high-quality product at a price that is perceived to be fair by its target market as long as they use effective communication and distribution methods to generate high-value perceptions among consumers. Competitor orientation: should measure themselves primarily against their competition. Competitive parity: set prices that are similar to those of their major competitors. Status quo pricing: changes prices only to meet those of competition. Customer orientation: when it sets its pricing strategy based on how it can add value to its products or services. 2) Customers: understanding consumers’ reactions to different prices. Demand curve: shows how many units of a product or service consumers will demand during a specific period of time at different prices. Prestige products or services: consumers purchase for their status rather than for their functionality. Price elasticity of demand: measures how changes in a price affect the quantity of the product demanded. % change in quantity demanded/ changes in price. Elastic: price sensitive, price elasticity is less than -1. Inelastic: insensitive, its price elasticity is greater than -1. Dynamic pricing (individualized pricing): refers to the process of charging different prices for goods or services based on the type of customer; time of the day, week, and level of demand. Factors influencing price elasticity of demand: Income effect: change in the quantity of a product demanded by consumers due to changes in their incomes. Substitution effect: consumers’ ability to substitute other products for the focal brand. Cross-price elasticity: percentage change in the quantity of product A demanded compared with the percentage change in price in product B.