Chapter 19 outline

Chapter 19 outline - Chapter 19- Pricing Concepts Price:...

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Chapter 19- Pricing Concepts Price : that which is given up in an exchange to acquire a good or service To the seller, price is revenue To the consumer, price is the cost of something Allocates resources in a free-market economy Sacrifice effect of price: what is sacrificed to get a good or service (ex: money, time, dignity) Information effect of price: infer quality information from price o Higher quality=higher price o Convey status/prominence Value based upon perceived satisfaction o Reasonable price = perceived reasonable value o Exchange based on expectation of satisfaction Barter: when goods and services are exchanged Importance of price to marketing managers Revenue: the price charged to customers multiplied by the number of units sold o What pays for every activity of the company Profit: revenue minus expenses To earn a profit, price must equal the perceived value to target customers Trends influencing price: o Flood of new products o Increased availability of bargain-priced private and generic brands o Price cutting as a strategy to maintain or regain market share o Internet used for comparison shopping Price x units = revenue Revenue – costs = profit Profit drives growth, salary increases, and corporate investment Prices too low may mean revenue isn’t as high as it could be, if the lower prices don’t increase sales proportionately Pricing objectives To survive in today’s highly competitive marketplace, companies need pricing objectives that are specific, attainable, and measurable 3 categories: profit-oriented, sales-oriented, and status quo Profit-oriented pricing objectives o Profit maximization: setting prices so that total revenue is as large as possible relative to total costs Can try to expand revenue by increasing customer satisfaction or attempt to reduce costs by operating more efficiently o Satisfactory profits: a reasonable level of profits o Return on investment (ROI): net profit after taxes divided by total assets 1
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Measures managements overall effectiveness in generating profits with the available assets Higher the firms ROI, better off the firm is A percentage that puts a firms profits into perspective by showing profits relative to investment Sales-oriented pricing objectives o Market share: a company’s product sales as a percentage of total
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This note was uploaded on 03/14/2011 for the course BMGT 350 taught by Professor Boyd during the Fall '08 term at Maryland.

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Chapter 19 outline - Chapter 19- Pricing Concepts Price:...

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