CH10 notes

CH10 notes - Pricing People process gain and loss...

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Pricing People process gain and loss differently - Love “gain” (risk-averse) - Hate “loss” (risk-seeking) Prospect Theory Marketing Implication Unbundle gains U(a+b)<U(a)+U(b) Giving coupons, discounts, gifts, at separate instances Design Pricing Strategy 1. Selecting Pricing Objectives Profit, market share, customer Profit Maximization: ^price to highest point possible (relies on economic theory) Target profit: pricing to achieve a specified profit Market-share objective: goal of controlling specified share of market Customer-oriented objective: setting pricing to meet specific customer expectations 2. Determining Demand Demand curve (P = a – bQ) estimate by buyer surveys, prcing experiments, sales data Price elasticity = % change Qx/ % change Py Elastic (E>1) Inelastic (E<1) Unitary (E=1) 3. Estimating Costs Total Cost = FC + VC Break-even point: sales volume of which total revenue = total cost = FC / (P - VC/unit) Break-even analysis: determine level of sales at given price to cover TC
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CH10 notes - Pricing People process gain and loss...

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