M7_FULL rev29nov10

M7_FULL rev29nov10 - Marketing Principles and Processes...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Marketng Principles and Processes M odule 7 Pricing Figure M7.1 Price Sensi t vity In the above graph about the same percentage of shoppers (72%-80%) find $1.10 - $1.50 an acceptable price, which means that in this range of prices they are not very price sensitive. But only 55% consider $1.60 an acceptable price. Then, in the $1.60 to $2.00 price range, shoppers are again not very price sensitive, so in this range the best choice of price is $2.00 or just below (say $1.99). There are only two prices to really consider, $1.49 or $1.99. Which one will generate the most gross contribution to profit? Such profitable pricing analysis, as we shall now see, is a crucial part of any pricing process. Peter R. Dickson ©Backbone Press 2010 % of shoppers who find price acceptable 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% $1.00 $1.50 $2.00 $2.50 Price % of Shoppers
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Profitable price setting 1 . W hat is profitable pricing? It is price setting and price changing that considers your costs and the sensitivity of customers to your price. Innovations in design and added-value processes reduce your costs and innovations in your design of products and processes increase your product and service quality performance and conformance that distance you from the price competition of inferior substitutes. Either way, innovations in cost or quality make you a price maker rather than a price taker. 1. Understanding Price First, the big picture. Prices determine how we allocate and use resources on Earth, at least these days. In the bad old days, when raiding dominated trading, brute force determined who owned the resources and who got what. Today, goods and services are traded and the price they are traded at allocates resources. When the price of a nurse’s services is bid up by an increase in demand, compared to the supply of these services, then more people study to become nurses. When the price of wool is bid down by a decrease in demand compared to supply, farmers find growing wool a less profitable use of their farm and labor so they switch to farming something else. In efficient, healthy markets, price goes up when demand increases more than supply increases, or when supply decreases more than demand decreases. Price goes down when demand decreases more than supply decreases and when supply increases more than demand increases. These are the laws of supply and demand. Every seller has to understand this and so does every buyer. And yet sometimes we do not. In the spring and summer of 2008, as U.S. gasoline prices rose above $4 per gallon, consumers, journalists and commentators talked endlessly about what can be done about the high price of oil and who can be blamed for the high price – as if there were greedy people in oil companies who were at fault. What drove up oil prices was that demand increased (including speculative demand from hoarders) more than supply increased. When demand dropped by 5-10%, as a result of consumers’ reaction to the high prices and the onset of a worldwide
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 04/11/2011 for the course MRKT 3023 taught by Professor Biritella during the Spring '11 term at FIU.

Page1 / 26

M7_FULL rev29nov10 - Marketing Principles and Processes...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online