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Building the Price Foundation●barter -exchanging goods and services for other goods and services rather than money●price - the money or other considerations exchanged for ownership or use of a good or serviceovalue- benefits / priceo“Have you ever tried to sell a diamond?”▪must create a market for diamonds, but without a market for re-sellable diamonds▪benefits: buying into a story/emotional moment▪purchase task is high because people don’t want to assign value to certain things (life insurance, funeral, marriage/love, children)ofactors that increase price: extra fees, extra charges, penaltiesofactors that decrease price: discounts, allowances, rebatesoprice = list price - (incentives + allowances) + extra fees1.identify pricing objectives and constraints●a business sets prices to meet objectives like:○generate a certain amount of sales○market share -maintain or increase firm's sales as percentage of its market○unit volume -maintain or increase the number of products sold○survival -mere survival in a competitive market○social responsibility -setting product price low enough to make product affordable to people that need it (i.e. pharmaceuticals) ●profit: return on investment/assets1.managing for long-run profits -give up immediate profit by developing high-end products to penetrate competitive markets ●profits generated via market share2.maximizing current profit -setting a short term profit (quarter, year, or less)3.target return -firm sets specific profit goal●price constraints○the number of potential buyers -- more demand, higher price can be charged○newness of product -- stage in product lifecycle, newer = higher○single product vs. product line -- must be consistent with other products in the market based on features○cost of producing and marketing product -- firm must cover costs○type of competitive markets -- higher competition = harder to change prices○competitors prices -- more difficult to change prices if competitors’ prices are “standard”●market competition○pure competition -selling identical products; they can be perfectly replaced with another
○monopolistic competition -competing producers sell products that are differentiated from one another and are as good but not perfect substitutes (some points of distinction could be: branding, quality, or location)○oligopoly -market or industry is dominated by a small number of sellers (i.e. cable, airlines, cell phone providers)○pure monopoly - a specific person or enterprise is the only supplier of a particular product2.estimate demand and revenue●translate consumer demand into expected revenue●intuition: lower price, increased demand (BUT you would have to offset less profit per product with volume which isn’t possible)●demand○in order for the demand curve to shift to the red line, favorable conditions would need to occur outside changes in price (i.e. changes in consumer tastes, loss of a competitor, increase of competitor prices, increase of consumer income)●sales and revenue estimation●price elasticity -how willing people are to pay an increased price○determined by:■substitutability -- more substitutes = more elastic■