Slide17_2010Fall_MGMT324

With experience price chosen may be fairly close to

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With experience, price chosen may be fairly close to the optimal one Ignores competition and consumer Assumes Q f(Price) (Cost plus pricing delusion)
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C onsumer Based Pricing Value Pricing Consumers Æ Value Æ Price Æ Cost Æ Product The sequence is exactly opposite to Cost Plus Pricing where Product Æ Cost Æ Price Æ Value Æ Consumers The main objective is to uncover the right blend of product quality, product costs, and product prices that fully satisfies the needs and wants of consumers and the profit targets of the firm The procedure of value pricing is
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Guess What? 7 Clues Born in 6 April 1964 Won the Tiffany Gold Medal for excellence in American design (the first automobile ever to do so) Father’s name is Lee Iacocca The most successful car in history Hardly a good sports car from an engineering perspective Sold at $2,368 (in 1964 dollars) Made by Ford Æ Mustang
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Value Pricing Example: Mustang Marketing research found 1) a large and growing share of the auto market longed for a sports car 2) most people could not afford one Nobody was selling excitement at a price most consumers could afford: less than $2,500 The challenge for Ford was to design a car 1) that looked sufficiently sporty to satisfy most buyers 2) without the usual mechanical elements of a sports car that drove its price out of reach Obviously no match for GM’s Corvette Yet $1.1 billion net profits (in 1964 dollars) for the first two years! Value pricing of Mustang
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C ompetition Based Pricing Price Match Guarantee Match/Beat competitor’s price Everyday Low Pricing (EDLP) Promises consumers a low price without the need to wait for sale price events or comparison shop
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