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Slide17_2010Fall_MGMT324

Slide17_2010Fall_MGMT324 - MGMT 324 Marketing Management...

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MGMT 324 Marketing Management Sangwoo Shin Fall 2010 Sections 5 & 6 Nov 3, 2010
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Topics for Today Understanding 4 P s P roduct P rice P romotion P lace Forecasting market demand: The Bass diffusion model Positioning Product line Introduction to Brand Management
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Why P rice? Consumer Company Earning Profit Creating Value Profit maximization Decisions on 4Ps to make its product/service the best alternative given competition Utility maximization Choice of the best alternative that satisfies their needs Competition 3 C Diagram Price has direct impacts on Profit and CS! Profit = Quantity sold × ( Price – Unit Variable Cost) – Fixed Cost CS = Benefit – Price – Risk – Search/Purchase/Use Costs
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Why P rice? Pricing strongly related to profitability Profit change 1% increase in Price Up to 8.6% increase 1% reduction in Variable Cost Up to 5.9% increase 1% increase in Quantity sold Up to 2.8% increase 1% reduction in Fixed Cost Up to 1.7% increase Industry % decrease in operating profit from 1% reduction in Price Food & Drug Stores -23.7% Airlines -12.9% Computers & Office Equipment -11.0% Average -8.0% Tobacco -4.9% Semiconductors -3.9% [McKinsey 2001]
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3 C Based Pricing Recap (Expanded CS Framework) CS = Benefit – Price – Risk – Search/Purchasing/Use Costs Perceived Expected Benefit Risk Search Costs Purchasing Costs Use Costs CS before Price Consumer Driven Pricing = Pricing based on CS Perceived Expected Benefit Risk Search Costs Purchasing Costs Use Costs CS after Price Price Feasible Price Range P max P min
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P max & P min based on only CS (or C onsumer)
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