Nov 4 - Pricing Strategy, Part II

# Nov 4 - Pricing Strategy, Part II - 100,000 \$40,000 50,000...

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Pricing Strategy, Part 2 November 4, 2009 Instructor: Tamar Milne

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Agenda The 5 C’s of Pricing Competition Costs Channel members New product pricing For next class. .. 2
III. Competition Level of competition often shapes pricing Monopoly Oligopoly Monopolistic competition Pure competition Decommoditize through differentiation 3

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IV. Costs Basing prices on costs is not value-oriented But cost structures affect profitability Break-even analysis: determines level of sales required at a given price to cover costs Break-even point: sales volume at which total revenue = total costs Consider fixed costs, variable costs, contribution margin 4
Marketing Math Break-even point (units) = total FC CM \$ Break-even point (\$) = total FC 1-(VC/selling price) If targeted return is sought: Break-even point (units) = total FC + profit \$ CM \$ 5

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6 Example: Break-even Analysis Price Qty demanded Total Rev Total FC Total VC Total Cost B/E Point Total Profit \$15 2,500 \$37,500 \$40,000 \$12,500 \$52,500 4,000 (\$15,000) \$10 10,000

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Unformatted text preview: 100,000 \$40,000 50,000 90,000 8,000 10,000 \$9 13,000 117,000 \$40,000 65,000 105,000 10,000 12,000 \$8 14,000 112,ooo \$40,000 70,000 110,000 13,334 2,000 \$7 15,000 105,000 \$40,000 75,000 115,000 20,000 (10,000 V. Channel Members Channel members – manufacturers, wholesalers, retailers – can have different pricing priorities 7 New Product Pricing Skimming (a.k.a. market-plus pricing ): setting relatively high price – May reduce price as competition intensifies Penetration pricing (a.k.a. market-minus pricing ): setting low price to attract new customers, market share – Often used by new entrants to already competitive categories 8 For Next Class. .. Reading: – Chapter 13: Marketing Channels SWOT Analysis due Friday – Email PDF to me by 1:00 p.m. – Hand in a hard copy in class – NOTE: Opportunities are not strategies, but the external factors that would make those strategies attractive or feasible 9...
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Nov 4 - Pricing Strategy, Part II - 100,000 \$40,000 50,000...

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