Pricing - Based on perceived value in consumer’s view not...

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04/26/11 1 Pricing Dr. Myril Hillman
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04/26/11 2 Markup Pricing Example: Toaster variable cost per unit $10 fixed cost $300,000 expected unit sales 50,000 manufacturer’s unit cost = variable cost + fixed costs unit sales = $10 + $300,00 = $16 50,000
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04/26/11 3 Markup price = unit cost (1 – desired return) = $16 = $20 (1 - .20) Manufacturer charges dealer $20 per unit and has $4 profit Dealer will “markup” unit to $40, a markup of 100% Manufacturer wants 20% Markup
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04/26/11 4 Target Return Pricing Want specific return on investment (ROI), Example: want 20% ROI on $1 million, thus want $200,000 return Target return price = unit cost + (desired return x invested capital) unit sales = $16 + (.20 x $1,000,000) = $20 50,000
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04/26/11 5 Break Even Volume Doing target return pricing, calculate Break-even volume = fixed cost (price – variable cost) = $300,000 = 30,000 units ($20 – 10)
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04/26/11 6 Perceived Value Pricing
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Unformatted text preview: Based on perceived value in consumer’s view, not seller’s cost Use marketing mix to build value May imbed in larger offering, part of bundled solution 04/26/11 7 Value Pricing Everyday low price for high quality Example: Microcenter computer Saturn Wal-mart 04/26/11 8 Prices based on competitor’s prices “follow the leader” (bigger firms) Going Rate Pricing 04/26/11 9 Sealed-bid pricing Price based on expectations of how competitors will price rather than on costs or demand (but don’t set price below cost) 04/26/11 10 Psychological Pricing Price viewed as indicator of quality Prices end in .99 conveys lower price conveys bargain Prices higher for well known, highly advertised brands Prices higher for highly advertised brands, even if average quality...
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