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Marketing Ch 14 Notes


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S TEP 4: S ELECT AN APPROXIMATE PRICE LEVEL 1) A key for marketing manager setting a final price for a product is to find an approximate price level to use as a reasonable starting point. a) Four Common Approaches: a.i) Demand-Oriented (a.i.1) An approach that weighs factors underlying expected customer tastes and preferences more heavily such factors as cost, profit, and competition. (a.i.1.a) Skimming Pricing : setting the highest initial price that customers really desiring the product are willing to pay (a.i.1.a.i) Effective when: a.i.1.a.i.1. Enough perspective customers are willing to buy the product immediately at the high initial price to make these sales profitable a.i.1.a.i.2. The initial price will not attract competitors a.i.1.a.i.3. Lowering price has only a minor effect on increasing the sales volume and reducing the unit costs a.i.1.a.i.4. Customers interpret the high price as signifying high quality (a.i.1.a.ii) These four conditions are most likely to exist when the new product is protected by patents or copyrights or its uniqueness is understood and valued by its customers. (a.i.1.b) Penetration Pricing : setting a low initial price on a new product to appeal immediately to the mass market. (a.i.1.b.i) Conditions: a.i.1.b.i.1. Many segments of the market are price sensitive a.i.1.b.i.2. A low initial price discourages competitors from entering the market a.i.1.b.i.3. Unit production and marketing costs fall dramatically as production volume increases (a.i.1.b.ii) A firm using penetration pricing may: a.i.1.b.ii.1. Maintain the initial price for a time to gain profit lost from its low introductory level a.i.1.b.ii.2. Lower the price further, counting on the new volume to generate the necessary profit (a.i.1.c) Prestige Pricing : involves setting a high price so that quality- or status- conscious consumers will be attracted to the product and buy it (a.i.1.c.i) Demand is actually reduced between points B and C (a.i.1.c.ii) Buyers see the lowering of price as a bargain and buy more between A and B (a.i.1.c.iii) Become more dubious about the quality and prestige and buy less from B to C. a.i.1.c.iii.1. A marketing manager’s strategy here is to stay above the initial price Price A __ __ __ __ __ __ __ _ B
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(a.i.1.d) Price Lining : a firm that is selling not just a single product but a line of products may price them at a number of different specific pricing points (a.i.1.e) Odd-Even Pricing : involves setting prices a few dollars or cents under an even number. (a.i.1.e.i) Example: $499.99 instead of $500 (a.i.1.f)Target Pricing : estimating the price that the ultimate consumer would be willing to pay for a product. Then work backwards through markups taken by retailers and wholesalers to determine what price they can charge wholesalers for the product (a.i.1.g) Bundle Pricing : the marketing of two or more products in a single package price (a.i.1.h) Yield Management Pricing : the charging of different prices to maximize revenue for a set amount of capacity at any given time
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