Pricing Considerations and Approaches - Pricing...

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Pricing Considerations and Approaches - Price is the amount of money charged for a product or service, or the sum of the values that consumers exchange for the benefits of having or using the product or service Factors to Consider When Setting Prices - a company’s pricing decisions are affected both by internal company factors and external environmental factors Internal Factors Affecting Pricing Decisions Marketing Objectives - pricing strategy is largely determined by decisions on market positioning - the clearer a firm is about its objectives, the easier it is to set price - common objectives are: o survival o current profit maximization o market-share leadership o product-quality leadership Survival - companies set survival as their major objective if they are troubled by too much capacity, heavy competition, or changing consumer wants - set a low price, hoping to increase demand - as long as their prices cover variable costs and some fixed costs, they can stay in business Current-profit maximization - companies estimate what demand and costs will be at different prices and choose the price that will produce the maximum current profit, cash flow, or return on investment Market-share leadership - companies believe that with the largest market share, they will enjoy the lowest costs and highest long-run profit - to become the market-share leader, these firms set prices as low as possible Product-quality leadership - this normally calls for charging a high price to cover such quality and the high cost of R&D Marketing-mix Strategy - price decisions must be coordinated with product design, distribution, and promotion decisions to form a consistent and effective marketing program - companies often make their pricing decisions first and then base other marketing-mix decisions on the prices they want to charge - price is a crucial product positioning factor that defines the product’s market, competition and design - the intended price determines what product features can be offered and what production costs can be incurred - target costing reverses the usual process of first designing a new product, determining its cost, and then asking “can we sell that?” instead, it starts with a target cost and works back - other companies deemphasize price and use other marketing-mix tools to create nonprice positions; the best strategy is not to charge the lowest
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