Xu_PM_Lecture 7_S - Pricing Lecture 7 Learning Objectives...

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Lecture 7 Pricing
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Learning Objectives What Is a Price? Factors to Consider When Setting Prices Specific Pricing Strategies 10/30/2011 Alison Jing Xu ©All Rights Reserved
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What Is a Price? Price is the amount of money charged for a product or service. It is the sum of all the values that consumers give up in order to gain the benefits of having or using a product or service. Price is the only element in the marketing mix that produces revenue; all other elements represent costs 10/30/2011 Alison Jing Xu ©All Rights Reserved
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Factors to Consider When Setting Prices 10/30/2011 Alison Jing Xu ©All Rights Reserved
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Monopoly Pricing A monopolist faces a downward-sloping demand curve Monopolist trades off price and quantity A monopolist’s optimal price increase for an: Increase in demand Increase in cost Decrease in price elasticity of demand 10/30/2011 Alison Jing Xu ©All Rights Reserved
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Price Elasticity of Demand (PED) price) iginal price)/(or in change ( quantity) (original quantity)/ in change ( price in change % demanded quantity in change % PED 10/30/2011 Alison Jing Xu ©All Rights Reserved
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Elastic Demand Curve price quantity demanded A small increase in price … … causes a big decrease in quantity demanded.
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Inelastic Demand Curve quantity demanded price A big increase in price … … causes a small decrease in quantity demanded.
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Factors the Reduce Price Sensitivity Income Fewer perceived substitutes e.g., Disney theme parks, concerts, patented technologies Unique value/strong brand e.g., L.V.; Bentley Storability of product only buy on sale? 10/30/2011 Alison Jing Xu ©All Rights Reserved
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Cost-based Pricing Cost-based pricing involves setting prices based on the costs for producing, distributing, and selling the product plus a fair rate of return for its effort and risk 10/30/2011 Alison Jing Xu ©All Rights Reserved
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Cost-based Pricing Cost-based pricing adds a standard markup to the cost of the product markup price= unit cost________ (1-desired rate of return) 10/30/2011 Alison Jing Xu ©All Rights Reserved
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Cost-based Pricing Example: What’s the markup price? - Variable cost: $10 - Fixed cost: $300,000 - Expected unit sales: 50,000 - Desired return on sales: 20% 10/30/2011 Alison Jing Xu ©All Rights Reserved
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Cost-based Pricing Can you see any problem with cost-plus pricing? 10/30/2011 Alison Jing Xu ©All Rights Reserved
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Factors to Consider When Setting Prices 10/30/2011 Alison Jing Xu ©All Rights Reserved
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Value-based pricing Value-based pricing uses the buyers’ perceptions of value, not the sellers cost, as the key to pricing. Price is considered before the marketing program
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Xu_PM_Lecture 7_S - Pricing Lecture 7 Learning Objectives...

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