Ch 14 Pricing Strategy

Ch 14 Pricing Strategy - MKTG 3104 Pricing Strategy CONTENT...

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MKTG 3104 Pricing Strategy
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CONTENT OBJECTIVES 1. Model price and its relationship to value 2. Identify the steps in price setting and the related issues and analysis Pricing objectives and constraints Demand and revenue curves Cost, volume, price, profit relationships Pricing strategies 3. Grasp the psychology of pricing and
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PRICE Money or other considerations exchanged for the ownership or use of a good or service. Ø Barter in 2009: $12 Ø 400,000+ companies ( International Reciprocal Trade Association)
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+ - Price Captures value for the seller via profits Create value for the buyer Marketing Model of Price and Value PERCIEVED OFFER VALUE = Perceived benefits Price Product VALUE Benefits Promotion Place Higher prices may also create benefits and value if: Buyers perceive a price-quality relationship (price is a signal) High price adds status or psychological benefit Reference Price +
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Steps in Setting Price (Chapter 14)
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Steps in Setting Price (Chapter 15)
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Step 1. Set Pricing Objectives 1. Price for Profit (Example: Target Profit Pricing, Target Return-on-Sales Pricing) Does this mean long term profit or current profit? Short term profit or target return objective  need to know cost/demand curves Long term horizon  need to consider the effect of price on market share, growth, and competitive advantage
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2. Price to Increase Sales or Market Share (Examples: Penetration Pricing Bundle Pricing) Easily communicated targets Dollar sales/share important for obtaining market power and leverage with distribution channels Unit sales/share important if you expect an experience curve effect  lower costs Step 1. Set Pricing Objectives
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Experience Curve Effect As cumulative volume doubles, unit cost decreases by a fixed percentage Why? Learning curve for production, marketing Process Innovation Product redesign Implication? Maximize unit sales to lower costs  lower price
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Price for Stability (Example: Price leader/Price Follower) •. powerful competitors want to avoid price competition or price wars •. price changes initiated by a price leader, the rest follow 4. Price for Survival •. try to cover costs
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Ch 14 Pricing Strategy - MKTG 3104 Pricing Strategy CONTENT...

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