7•307•Pricing - USC Marketing

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USC Marketing 307 • #7 Pricing © 2008 Ira S. Kalb. All rights reserved. 1 1. Definition . Price is the amount of money buyers are willing to pay and sellers are willing to sell the product (to achieve the goals of the Plan). 2. Control over price . Your ability to control the price is directly related to the quality and execution of the strategies that have come before. In particular, the brand image building blocks of Positioning and Corporate Image directly bear on your ability to control the price. 3. Price Components and Factors — physical and psychological. 3-1. Physical components. Cost (cost of sales), Gross Profit Margin, Amortization of other costs allowed by GAAP accounting principles. 3-2. Physical factors. Quality of the product (including level of service), Competitor pricing, Supply and Demand. 3-3. Psychological “Value perception” factors. 3-3-1. Positioning — image building block with usually the greatest influence value and price (upscale, high-end, exotic = higher price). 3-3-2. Corporate Image — PIMS study said companies perceived as leading in customer service, or other areas, charge on average 9% higher prices. 3-3-3. Product — Quality perception = higher price. 3-3-4. Price — The only way to value an unknown product from an unknown company is by its price. Most significant digit pricing . $9.95 versus $10. 3-3-5. Distribution — Buyers will pay more from certain channels because they trust them (Nordstrom’s versus Venice Walk). 3-3-6. Promotion — Promotion via high-end media = higher prices. 3-3-7. MIS — Survey customers after purchase value product higher. PIMS (Profit Impact of  Marketing Strategy) study of  the Strategic Planning  Institute studied 2,600  companies over 15 years. The  Value Proposition  is  created mainly from the  first 4 building blocks but  could also come from  others. Price physical components Gross Profit COS or CGS  Amortization GPM = (Price – COS)/Price COS = Cost of Sales, and  CGS = Cost of Goods Sold
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USC Marketing 307 • #7 Pricing © 2008 Ira S. Kalb. All rights reserved. 2 1. Economic Factors — How can supply and demand tie psychological factors to the physical factors? 4-1. Elastic Demand Curve Small changes in price cause large changes in the quantity demanded. If you are here, you typically have done a lousy job of positioning your product. 4-2. Inelastic Demand Curve Large changes in price result in only small changes in the quantity demanded. If you are here, you typically have gotten to Level 3 (or done a great job) of positioning. 1. Financial Health. Price is critically important to your ability to succeed as an organization. Everything on your Balance Sheet and Income Statement stems from your ability to get the price you need to… (1) give buyers what they want, (2) stay in business, and (3) pay to keep good employees. Revenues = Price x Quantity 5-1. Balance Sheet Equation: Assets = Liabilities + Owners Equity
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This note was uploaded on 09/13/2009 for the course BUAD 307 taught by Professor Morristowns during the Spring '07 term at USC.

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7•307•Pricing - USC Marketing

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