This preview shows pages 1–2. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.View Full Document
Unformatted text preview: Chapter 13 Building the Price Foundation Price- the money or other considerations exchanged for the ownership or use of a product or service. Barter- the practice of exchanging products and services for other products and services rather than money Price Equation= List Price Incentives and Allowances + Extra Fees Value- the ratio of perceived benefits to price or =perceived benefits / price- For a given price, as perceived benefits increase, value increases Value pricing- the practice of simultaneously increasing product and service benefits while maintaining or decreasing price - Value involves the judgment by a consumer of the worth and desirability of a product or service to substitutes that satisfy the same need- Reference value involves comparing the costs and benefits of substitute items Profit Equation- profit = total revenue total cost = (unit price x quantity sold) (fixed cost + variable cost) Six Major Steps For Setting Prices 1. Identifying pricing objectives and constraints a. Objectives like profit, market share, and survival b. Constraints like demand for product class, brand, newness, cost, and competition 2. Estimate demand and revenue a. Demand, sales revenue, and price elasticity estimation 3. Determine cost, volume, and profit relationships a. Cost estimation, marginal analysis in relation to profit, break even analysis in relation to profit 4. Select an approximate price level 5. Set list of quoted price 6. Make special adjustments to list or quoted price Step 1- Identify Pricing Objectives and Constraints pricing objectives- involve specifying the role of price in an organizations marketing and strategic plans o profit managing for long-run profits- companies give up immediate profit by developing quality products to penetrate competitive markets over the long term maximizing current profit- targets can be set and performance measured quickly target return- occurs when a firm sets a profit goal o sales o market share ratio of a firms sales revenue or unit sales to those of the industry including itself o unit volume the quantity produced or sold o survival o social responsibility pricing constraints- factors that limit the range of prices a firm may set o pure competition- advertising only informs buyers that the sellers corn is available because the price is set by the marketplace because the corn is identical o monopolistic competition- private brands of peanut butter compete with national brands like Skippy and Jif. Price and non price competition exist o oligopoly- firms try to avoid price competition because it will lead to disastrous price wars where everyone loses money o pure monopoly- firms with pure monopoly make money in the beginning but when they are reluctant to lower prices and another firm comes out with a similar product for cheaper, they will lost a lot of money Step 2- Estimate Demand and Revenue demand curve- a graph relating the quanitity sold and price, which shoes the maximum number of units that will be sold at a given price o...
View Full Document
This note was uploaded on 04/08/2011 for the course MRKT 301 taught by Professor Taek.kim during the Spring '11 term at Rutgers.
- Spring '11