Outline of Chapter 18

Outline of Chapter 18 - Outline of Chapter 18 PRICE SETTING...

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Outline of Chapter 18 PRICE SETTING IN THE BUSINESS WORLD INTRODUCTION PRICE SETTING IS A KEY STRATEGY DECISION Transparency 113 (Exhibit 18-1) "Key Factors that Influence Price Setting" SOME FIRMS JUST USE MARKUPS Markups guide pricing by middlemen Overhead 187 "Markups" MARKUP--a dollar amount added to the cost of products to get the selling price. Markup percent is based on selling price--a convenient rule MARKUP (PERCENT)--the percentage of selling price that is added to the cost to get the selling price. Many use a "standard" markup percent Markups are related to gross margins Markup chain may be used in channel pricing MARKUP CHAIN--the sequence of markups firms use at different levels in a channel--determining the price structure in the whole channel. Transparency 114 (Exhibit 18-2) "Example of a Markup Chain and Channel Pricing" Transparency 115 "Alternate Example of a Markup Chain and Channel Pricing"
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Overhead 188 "Alternate Approach for Computing Channel Markups" High markups don't always mean big profits Lower markups can speed turnover--and the stockturn rate STOCKTURN RATE--the number of times the average inventory is sold in a year. Mass-merchandisers run in fast company Where does the markup chain start? AVERAGE-COST PRICING IS COMMON AND CAN BE DANGEROUS Overhead 189 "Average-Cost Pricing" AVERAGE-COST PRICING--adding a reasonable markup to the average cost of a product. Overhead 190 (Exhibit 18-3) "Results of Average-Cost Pricing" It does not make allowances for cost variations as output changes MARKETING MANAGER MUST CONSIDER VARIOUS KINDS OF COSTS There are three kinds of total cost TOTAL FIXED COST--the sum of those costs that are fixed in total--no matter how much is produced. TOTAL VARIABLE COST--the sum of those changing expenses that are closely related to output--expenses for parts, wages, packaging materials, outgoing freight, and sales commissions.
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TOTAL COST--the sum of total fixed and total variable costs. There are three kinds of average cost AVERAGE COST (PER UNIT)--the total cost divided by the related quantity. AVERAGE FIXED COST (PER UNIT)--the total fixed cost divided by the related quantity. AVERAGE VARIABLE COST (PER UNIT)--the total variable cost divided by the related quantity. An example shows cost relations Overhead 191 (Exhibit 18-4) "Cost Structure of a Firm" Transparency 116 (Exhibit 18-5) "Typical Shape of Cost (per unit) Curves when Average Variable Cost per Unit Is Constant" Ignoring demand is the major weakness of average-cost pricing Transparency 117 (Exhibit 18-6) "Evaluation of Various Prices along a Firm's Demand Curve" Transparency 118 (Exhibit 18-7) "Summary of Relationships among Quantity, Cost, and Price Using Cost-Oriented Pricing" Experience curve pricing is even riskier EXPERIENCE CURVE PRICING--average-cost pricing using an estimate of future average costs.
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Overhead 192 "Experience Curve Pricing" Don't ignore competitors' costs SOME FIRMS ADD A TARGET RETURN TO COST Target return pricing scores
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This note was uploaded on 01/16/2012 for the course MKT 1137 taught by Professor Staff during the Spring '11 term at Villanova.

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Outline of Chapter 18 - Outline of Chapter 18 PRICE SETTING...

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