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CH17 - Chapter 17 Price Concepts Pricing and the Law Price...

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Chapter 17 Price Concepts Pricing and the Law Price The exchange value of a good or service Competition Act Federal legislation prohibiting price discrimination, price fixing, bid rigging, predatory pricing, false or misleading ordinary selling price representations, and other anti-competitive practices Profitability Objectives Consumers must be convinced they are receiving good value for their money Intense competition results from competition for leadership position Basic formula for profit and revenue: Profit = Revenue ― Expenses Total Revenue = Price X Quantity Sold Profit maximization Point at which the additional revenue gained by increasing the price of a product equals the increase in total costs Target-return objectives Short-run or long-run pricing objectives of achieving a specified return on either sales or investment Volume Objectives Belief that increased sales volume is more important in the long run than immediate profits Can maximize sales through pricing and non-price factors such as service and quality Market-share objectives The goal of controlling a specified minimum share of the market for a firm’s good or service Example: Apple has 83 percent share of the market for digital downloads The PIMS Studies The Profit Impact of Market Strategies (PIMS) Project Research that discovered a strong positive relationship between a firm’s market share and product quality and its return on investment Firms with market share more than 40 percent have average return on investment of 32 percent Explanation: Firms with large shares accumulate operating experience and lower overall costs relative to competitors with smaller market shares Meeting Competition Objectives Firms sometimes set prices to match industry leaders Shifts marketing mix to focus on non-price factors Example: Some airlines focus competition on factors such as service and comfort Value pricing Pricing strategy emphasizing the benefits derived from a product in comparison to the price and quality levels of competing offerings Typically works best for relatively low-priced goods and services Challenge is convincing customers that low-priced brands offer quality comparable to that of higher-priced product Prestige Objectives Prestige objectives
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