Chapter 16

Chapter 16 - Chapter 16: pricing objectives and policies o...

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Chapter 16: pricing objectives and policies o Price has many strategy dimensions How flexible prices will be Level of prices over product life cycle To whom and when discounts/allowances will be given How transportation costs will be handled Price: amount of money that is charged for something of value o Pricing objectives should be explicitly stated o Profit oriented strategies Target return objective : sets a specific level of profit as an objective Stated as a % of sales or of capital investment Has administrative advantages in a large company Performance can be compared against the target Some managers just want satisfactory profits Profit maximization objective : seeks to get as much profit as possible Stated as a desire to earn a rapid return on investment Doesn’t always lead to high prices o Sales oriented objectives Seeks some level of unit sales, dollar sales, or share of market-without referring to profit Not used as much anymore because of concern about profit Market share objectives are popular Offers better economies of scale o Status quo pricing objectives Don’t rock the boat pricing objectives Stabilize prices, meet competition, avoid competition Most common when total market isn't growing Nonprice competition: aggressive action on one of more of the P's other than price o Most firms set specific pricing policies-to reach objectives Administered prices: consciously set prices If a firm doesn’t directly sell to final customers, it usually wants to administer both the price it gets from intermediaries and the price final customers pay Hard to administer prices through the channel Some firms don’t even try Just meet competition o Price flexibility policies One price policy: offering the same price to all customers who purchase products under essentially the same conditions and in the same quantities Makes pricing easier But competitors can undercut, especially if price is too high Flexible price policy: offering the same product and quantities to different customers at different prices More common now that most prices are maintained in a central computer database Frequent changes are easier Salespeople can adjust prices to the situation
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Flexible pricing is most common in the channels, in direct sales of business products, and at retail for expensive shopping products Situations usually involve personal selling Too much price cutting erodes profits Disadvantages of flexible pricing Customers will be unhappy if they find out someone else paid less for the same product Time needed for bargaining will increase Can increase selling costs and reduce profits Can frustrate customers o Price-level policies-over the product life cycle
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This note was uploaded on 03/05/2012 for the course BUSI 406 taught by Professor Perreault during the Fall '11 term at UNC.

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Chapter 16 - Chapter 16: pricing objectives and policies o...

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