F11MKT300Pricing1

# F11MKT300Pricing1 - Pricing Strategy Basic Concepts Basic...

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Pricing Strategy: Basic Concepts Basic Concepts of Pricing Economic Value to the Customer (EVC) Optimal Pricing - Basics

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Back to the Profit Equation… Profits (for a given product) Profits = Revenue – Costs = P rice x Q uantity Sold – Variable Costs – Fixed Costs = P X Q c X Q Fixed Costs, where c is the per unit variable cost = P X Q(P) c X Q(P) Fixed Costs Punch line : understanding Pricing is important because it affects multiple components of the profit function This is because Quantity Sold depends on Price (via the demand curve) as well
Common Pricing Practices (1) q Cost-plus pricing : Adding a standard markup to the cost of the product. q Determine average cost = average variable cost + average fixed cost Total Variable Cost Quantity Constant per unit variable cost Per unit variable cost varies with quantity

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Common Pricing Practices (2) q Average fixed cost = Total Fixed Cost/Quantity Total Fixed Cost Quantity Invariant across full range of quantity Costs are fixed for only a certain range of quantity
Common Pricing Practices (3) q Competition-based pricing : Setting price

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