Chapter 16-Pricing Objectives and Policies

Chapter 16-Pricing Objectives and Policies - Chapter...

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Chapter 16-Pricing Objectives and Policies Tuesday, March 22, 2011 12:22 AM 1. Price has Many Strategy Dimensions 1.a. Pricing decisions affect both the number of sales a firm makes and how much money it earns 1.a. Managers develop specific pricing objectives which drive decisions about key pricing policies: 1.a.i. How flexible prices will be 1.a.i. The level of prices over the product life cycle 1.a.i. To whom and when discounts and allowances will be given 1.a.i. How transportation costs will be handled 1.a. It's not easy to define price in real-life situations because price reflects many dimensions 1.a. The price equation: price equals something of value 1.a.i. Price: the amount of money that is charged for "something" of value 1.a.i. Almost every business transaction in our modern economy involves an exchange of money (the price) for something 1. Objectives Should Guide Strategy Planning for Price 1.a. Pricing objectives should be explicitly stated because they have a direct effect on pricing policies as well as the methods used to set Prices 1. Profit-Oriented Objectives 1.a. Target returns provide specific guidelines 1.a.i. Target return objective: sets a specific level of profit as an objective; often stated as a percentage of sales or of capital investment 1.a. Some just want satisfactory profits 1.a. Profit maximization can be socially responsible 1.a.i. Profit maximization objective: seeks to get as much profit as possible 1. Sales-Oriented Objectives 1.a. Sales-oriented objective: seeks some level of unit sales, dollar sales, or share of market-without referring to profit 1.a. Sales growth doesn't necessarily mean big profits 1.a.i. Generally, business managers now pay more attention to profits 1.a.i. Firm's costs could be growing faster than sales 1.a. Market share objectives are popular 1.a.i. Many markets seek to gain a specified share/percent of a market 1.a.i. A company with a longer-run view may aim for increased market share when the market is growing 1.a.i.1. Hope is that future volume will justify sacrificing some profit in the short run 1.a.i. Market share objectives have the same limitations as straight sales growth objectives 1. Status Quo Pricing Objectives 1.a. Don’t-rock-the-boat objectives 1.a.i. Status quo objectives: don’t-rock-the-pricing-boat objectives
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1.a.ii. Most common when the total market is not growing 1.a. Or stress nonprice competition instead 1.a.i. Nonprice competition: aggressive action on one or more of the Ps other than Price 1. Most Firms Set Specific Pricing Policies-to Reach Objectives 1.a. Administered prices help achieve objectives 1.a.i. Administered prices: consciously set prices 1.a.ii. If a firm doesn’t sell directly to final customers, it usually wants to administer both the price it receives from intermediaries and the price final customers pay->the price final customers pay will ultimately affect the quantity it sells 1.a.i. Some firms just meet competition 1.a.i. Managers should administer their prices carefully
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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-Pricing Objectives and Policies - Chapter...

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