The document discusses various principles of pricing, including:
1) Pricing is the assignment of value for a good or service that customers must pay to acquire it. Price captures some of the value created and is an important marketing lever.
2) Non-monetary costs like time, convenience and psychological factors influence customer perceptions of value and must be considered in pricing.
3) Developing pricing strategies requires understanding demand, costs, competitors and evaluating the business environment. Common strategies include cost-based, demand-based, yield management and competition-based approaches.
This document discusses various price adjustment strategies used by companies. It describes different types of discounts and allowances given to customers including cash discounts, quantity discounts, and promotional allowances. It also discusses segment pricing where different prices are charged to different customer segments based on factors like customer type, product form, location, or time. Other strategies covered include psychological pricing, promotional pricing, value pricing, and geographic pricing for domestic and international markets.
Standard costs are developed using formulas, supplier lists, or time studies and compared to actual costs to calculate variances which should be investigated if significant, with variances for direct materials including price, quantity, mix and yield and variances for direct labor including rate, efficiency, mix, yield and idle time.
The document discusses various factors and strategies companies consider when setting prices. It covers internal factors like costs, objectives, and competitors as well as external factors like demand, the market, and regulations. The document also outlines three main approaches to setting prices - cost-based, value-based, and competition-based - as well as various pricing strategies companies use like discounts, price discrimination, and adjusting prices.
A breakeven analysis is used to determine how much sales volume your business needs to start making a profit.
The breakeven analysis is especially useful when you're developing a pricing strategy, either as part of a marketing plan or a business plan.
Price is a key element of the marketing mix that generates revenue. It communicates the value of a product and is determined based on customer perceived value and costs. When setting prices, companies analyze factors like demand, costs, competition and select objectives like profit maximization. Appropriate pricing requires estimating demand curves and price elasticity to understand customer sensitivity.
What is Pricing Strategy and what are the objectives and factors affecting the Pricing Strategy.
There are Certain types of Pricing Strategies as well. Each and every strategy has its own affect on the product and services offered by an organization.
This document discusses various price adjustment strategies used by companies. It describes different types of discounts and allowances given to customers including cash discounts, quantity discounts, and promotional allowances. It also discusses segment pricing where different prices are charged to different customer segments based on factors like customer type, product form, location, or time. Other strategies covered include psychological pricing, promotional pricing, value pricing, and geographic pricing for domestic and international markets.
Standard costs are developed using formulas, supplier lists, or time studies and compared to actual costs to calculate variances which should be investigated if significant, with variances for direct materials including price, quantity, mix and yield and variances for direct labor including rate, efficiency, mix, yield and idle time.
The document discusses various factors and strategies companies consider when setting prices. It covers internal factors like costs, objectives, and competitors as well as external factors like demand, the market, and regulations. The document also outlines three main approaches to setting prices - cost-based, value-based, and competition-based - as well as various pricing strategies companies use like discounts, price discrimination, and adjusting prices.
A breakeven analysis is used to determine how much sales volume your business needs to start making a profit.
The breakeven analysis is especially useful when you're developing a pricing strategy, either as part of a marketing plan or a business plan.
Price is a key element of the marketing mix that generates revenue. It communicates the value of a product and is determined based on customer perceived value and costs. When setting prices, companies analyze factors like demand, costs, competition and select objectives like profit maximization. Appropriate pricing requires estimating demand curves and price elasticity to understand customer sensitivity.
What is Pricing Strategy and what are the objectives and factors affecting the Pricing Strategy.
There are Certain types of Pricing Strategies as well. Each and every strategy has its own affect on the product and services offered by an organization.
Job costing involves accumulating costs for specific jobs or orders. It traces direct costs like materials and labor to individual jobs in order to see if costs can be reduced on future jobs or if excess costs on a job can be billed to the customer. Job costing is used when production is in small batches rather than mass production and costs need to be tracked at a detailed level, such as for custom machinery, software programs, or buildings. Costs like direct materials, labor, and overhead are recorded throughout the production process and totaled at the end to determine the full cost of completing the job.
Cost means the amount of expenditure (actual or notional) incurred on, or attributable to, a given thing.
The Institute of Cost and Management Accountant, England (ICMA) has defined Cost Accounting as – “the process of accounting for the costs from the point at which expenditure incurred, to the establishment of its ultimate relationship with cost centers and cost units.
In its widest sense, it embraces the preparation of statistical data, the application of cost control methods and the ascertainment of the profitability of activities carried out or planned”.
Price adaptation refers to a business adjusting its pricing models to suit different geographic areas, consumer demands, and incomes. As part of price adaptation, geographical pricing involves setting different prices for products in different regions based on factors like shipping costs and consumer purchasing power. For example, a company may charge higher prices in wealthy areas and lower prices in poorer areas. Geographical pricing strategies must consider how shipping costs vary between locations and whether the buyer or seller will pay those costs. Common geographical pricing types include FOB origin pricing where the buyer pays shipping, zone pricing with different prices in zones based on distance, and basing point pricing using a selected city's shipping costs.
The document discusses various pricing concepts and methods. It defines pricing as determining the exchange value of goods and services. It also outlines several pricing objectives like profit maximization. The document then describes various factors that influence pricing decisions and different cost-based pricing methods organizations can use, including mark-up pricing and target return on investment pricing. It provides examples to illustrate how to calculate price using these cost-based pricing methods.
The document discusses several key considerations for retailers in setting prices, including customer price sensitivity, competition, costs, and legal/ethical issues. It explains that value is perceived benefits divided by price, so retailers can increase sales by raising benefits or lowering prices. It also discusses factors like competition, economic conditions, price adjustments, and strategies like everyday low pricing, odd pricing, and using gross margin return on investment to evaluate product profitability.
Students should be able to:
Identify economies and diseconomies of scale.
Students must be able to distinguish and give examples of internal and external economies and diseconomies of scale.
Cost-based pricing methods include mark-up pricing, absorption cost pricing, target rate of return pricing, and marginal cost pricing. Demand-based pricing methods are determined by what the traffic can bear, skimming pricing, and penetration pricing. Other pricing methods include competition-oriented pricing, product line pricing, tender pricing, affordability-based pricing, and differentiated pricing. Pricing strategies must be appropriate for achieving the desired objectives of the firm.
Pricing is the method used by producers to determine the value of goods and services. There are various pricing strategies that can be used including penetration pricing, which sets low initial prices to gain market share, and premium pricing, which positions products as exclusive through higher prices. The document also outlines other strategies such as competition pricing, product line pricing, and bundle pricing.
Price is one of several factors that influence purchasing decisions. It indicates quality and image while providing a measure of value. The importance of price depends on the product. Of the four Ps in marketing (product, place, promotion, price), price is the only one that directly generates revenue. When setting prices, companies consider objectives, costs, competition, consumer perceptions, and legal issues. Long-term strategies include high prices for premium brands, low prices to increase sales volume, and market prices matching competitors. Short-term strategies are used to enter new markets or boost existing sales through promotions.
The document discusses global strategies and how companies can globalize. It defines a global strategy as treating the world as a single market by standardizing products across countries. A multi-domestic strategy involves customizing products for each local market. Sources of competitive advantage from a global strategy include economies of scale, exploiting differences in resources between countries, and strategic flexibility. The document also discusses types of global strategies like foreign direct investment, joint ventures, contractual agreements, and licensing.
Target costing is a management technique that works backwards from the desired market price and profit to determine the maximum allowable cost for a product. It establishes a target cost before production begins based on the market share and profit needed. Current costs are then compared to the target cost to identify any cost gaps that management must address through design improvements or other strategies. The key aspects are establishing a target cost upfront based on market factors rather than internal budgets, and driving design and planning changes to meet that target cost.
The document discusses various pricing strategies that can be used including penetration pricing, market skimming, value pricing, loss leader pricing, psychological pricing, price leadership, tender pricing, price discrimination, predatory pricing, absorption cost pricing, marginal cost pricing, contribution pricing, target pricing, and cost-plus pricing. It provides examples and explanations of when each strategy may be suitable.
The document discusses the holistic marketing concept and provides details about the beverage brand Paper Boat and its marketing strategies. Key points include:
1) Holistic marketing involves interconnected marketing activities to project a unified business image and ensure customer purchase over competitors.
2) Paper Boat uses storytelling and nostalgia in its marketing campaigns to build emotional connections with its target audience of urban 20-40 year olds.
3) The brand's integrated marketing strategy includes social media campaigns encouraging customers to share childhood memories.
The document discusses various cost concepts and classifications including:
- Fixed vs direct vs variable costs and functional vs behavioral costs
- Cost classifications such as functional (materials, labor, overhead) and behavioral (fixed, variable) costs
- Cost relationships in a manufacturing company's income statement and how costs flow through work-in-process and finished goods inventory
- Different cost behavior patterns such as total fixed costs, committed fixed costs, total variable costs, total mixed costs, and total step costs
- Methods for separating mixed costs into fixed and variable components
- The impact of computers on manufacturing through technologies like automatic identification systems, computer-aided design, computer-aided manufacturing, flexible manufacturing systems, and computer-integr
Cost-based pricing methods include mark-up pricing, absorption cost pricing, target rate of return pricing, and marginal cost pricing. Demand-based pricing methods are determined by what the market will bear and include skimming pricing, penetration pricing, and competition-oriented pricing like premium, discounted, and parity pricing. Other methods are product line pricing, tender pricing, affordability-based pricing, and differentiated pricing.
The “best” price for a product or service is one that maximizes profits, not necessarily the price that sells the most units. This presentation uses real-world examples to explore how Excel’s Solver functionality can be used to calculate the optimal price for any product or service.
Economic Presentation: Cost Theory and AnalysisBilal Mughal
The document discusses different types of costs including:
1. Accounting costs include expenses incurred during production adjusted for depreciation, while economic costs include explicit payments to factors of production as well as implicit opportunity costs.
2. In the short-run, costs are classified as fixed, variable, total, average fixed, average variable, and marginal based on their relationship to changing output levels.
3. In the long-run, all factors are variable and long-run total, average, and marginal cost curves are defined based on minimum cost production at different output scales.
This document discusses cost behavior and different types of costs. It defines variable costs as changing proportionally with activity level and fixed costs as remaining constant despite changes in activity. Total and per-unit cost behaviors are examined for variable and fixed costs. Examples are provided to illustrate concepts. Methods for analyzing mixed costs are presented, including high-low, scattergraph, and least squares regression. The contribution format income statement is introduced as a way to organize costs by behavior.
- Product K is nearing the end of its lifecycle and should be priced at $75 per unit to maximize contribution during the maturity stage, allowing 480 units of Product L to be produced per week.
- Product L is in the growth stage and should be priced at $126 per unit to maximize contribution while meeting the 2,000 hour weekly production capacity.
- Product M is highly innovative and will change the market, making it well-suited for a market skimming pricing strategy during the introduction stage.
This summary provides an overview of key concepts from differential cost analysis and incremental decision making:
Differential cost analysis focuses on the differences in costs and revenues between alternative choices. It considers only costs and revenues that change with the decision. Incremental analysis compares the incremental revenue to the incremental costs of various options to determine the most profitable choice. For example, a company may analyze whether to make or buy a product based on the incremental costs and revenues of each option.
Job costing involves accumulating costs for specific jobs or orders. It traces direct costs like materials and labor to individual jobs in order to see if costs can be reduced on future jobs or if excess costs on a job can be billed to the customer. Job costing is used when production is in small batches rather than mass production and costs need to be tracked at a detailed level, such as for custom machinery, software programs, or buildings. Costs like direct materials, labor, and overhead are recorded throughout the production process and totaled at the end to determine the full cost of completing the job.
Cost means the amount of expenditure (actual or notional) incurred on, or attributable to, a given thing.
The Institute of Cost and Management Accountant, England (ICMA) has defined Cost Accounting as – “the process of accounting for the costs from the point at which expenditure incurred, to the establishment of its ultimate relationship with cost centers and cost units.
In its widest sense, it embraces the preparation of statistical data, the application of cost control methods and the ascertainment of the profitability of activities carried out or planned”.
Price adaptation refers to a business adjusting its pricing models to suit different geographic areas, consumer demands, and incomes. As part of price adaptation, geographical pricing involves setting different prices for products in different regions based on factors like shipping costs and consumer purchasing power. For example, a company may charge higher prices in wealthy areas and lower prices in poorer areas. Geographical pricing strategies must consider how shipping costs vary between locations and whether the buyer or seller will pay those costs. Common geographical pricing types include FOB origin pricing where the buyer pays shipping, zone pricing with different prices in zones based on distance, and basing point pricing using a selected city's shipping costs.
The document discusses various pricing concepts and methods. It defines pricing as determining the exchange value of goods and services. It also outlines several pricing objectives like profit maximization. The document then describes various factors that influence pricing decisions and different cost-based pricing methods organizations can use, including mark-up pricing and target return on investment pricing. It provides examples to illustrate how to calculate price using these cost-based pricing methods.
The document discusses several key considerations for retailers in setting prices, including customer price sensitivity, competition, costs, and legal/ethical issues. It explains that value is perceived benefits divided by price, so retailers can increase sales by raising benefits or lowering prices. It also discusses factors like competition, economic conditions, price adjustments, and strategies like everyday low pricing, odd pricing, and using gross margin return on investment to evaluate product profitability.
Students should be able to:
Identify economies and diseconomies of scale.
Students must be able to distinguish and give examples of internal and external economies and diseconomies of scale.
Cost-based pricing methods include mark-up pricing, absorption cost pricing, target rate of return pricing, and marginal cost pricing. Demand-based pricing methods are determined by what the traffic can bear, skimming pricing, and penetration pricing. Other pricing methods include competition-oriented pricing, product line pricing, tender pricing, affordability-based pricing, and differentiated pricing. Pricing strategies must be appropriate for achieving the desired objectives of the firm.
Pricing is the method used by producers to determine the value of goods and services. There are various pricing strategies that can be used including penetration pricing, which sets low initial prices to gain market share, and premium pricing, which positions products as exclusive through higher prices. The document also outlines other strategies such as competition pricing, product line pricing, and bundle pricing.
Price is one of several factors that influence purchasing decisions. It indicates quality and image while providing a measure of value. The importance of price depends on the product. Of the four Ps in marketing (product, place, promotion, price), price is the only one that directly generates revenue. When setting prices, companies consider objectives, costs, competition, consumer perceptions, and legal issues. Long-term strategies include high prices for premium brands, low prices to increase sales volume, and market prices matching competitors. Short-term strategies are used to enter new markets or boost existing sales through promotions.
The document discusses global strategies and how companies can globalize. It defines a global strategy as treating the world as a single market by standardizing products across countries. A multi-domestic strategy involves customizing products for each local market. Sources of competitive advantage from a global strategy include economies of scale, exploiting differences in resources between countries, and strategic flexibility. The document also discusses types of global strategies like foreign direct investment, joint ventures, contractual agreements, and licensing.
Target costing is a management technique that works backwards from the desired market price and profit to determine the maximum allowable cost for a product. It establishes a target cost before production begins based on the market share and profit needed. Current costs are then compared to the target cost to identify any cost gaps that management must address through design improvements or other strategies. The key aspects are establishing a target cost upfront based on market factors rather than internal budgets, and driving design and planning changes to meet that target cost.
The document discusses various pricing strategies that can be used including penetration pricing, market skimming, value pricing, loss leader pricing, psychological pricing, price leadership, tender pricing, price discrimination, predatory pricing, absorption cost pricing, marginal cost pricing, contribution pricing, target pricing, and cost-plus pricing. It provides examples and explanations of when each strategy may be suitable.
The document discusses the holistic marketing concept and provides details about the beverage brand Paper Boat and its marketing strategies. Key points include:
1) Holistic marketing involves interconnected marketing activities to project a unified business image and ensure customer purchase over competitors.
2) Paper Boat uses storytelling and nostalgia in its marketing campaigns to build emotional connections with its target audience of urban 20-40 year olds.
3) The brand's integrated marketing strategy includes social media campaigns encouraging customers to share childhood memories.
The document discusses various cost concepts and classifications including:
- Fixed vs direct vs variable costs and functional vs behavioral costs
- Cost classifications such as functional (materials, labor, overhead) and behavioral (fixed, variable) costs
- Cost relationships in a manufacturing company's income statement and how costs flow through work-in-process and finished goods inventory
- Different cost behavior patterns such as total fixed costs, committed fixed costs, total variable costs, total mixed costs, and total step costs
- Methods for separating mixed costs into fixed and variable components
- The impact of computers on manufacturing through technologies like automatic identification systems, computer-aided design, computer-aided manufacturing, flexible manufacturing systems, and computer-integr
Cost-based pricing methods include mark-up pricing, absorption cost pricing, target rate of return pricing, and marginal cost pricing. Demand-based pricing methods are determined by what the market will bear and include skimming pricing, penetration pricing, and competition-oriented pricing like premium, discounted, and parity pricing. Other methods are product line pricing, tender pricing, affordability-based pricing, and differentiated pricing.
The “best” price for a product or service is one that maximizes profits, not necessarily the price that sells the most units. This presentation uses real-world examples to explore how Excel’s Solver functionality can be used to calculate the optimal price for any product or service.
Economic Presentation: Cost Theory and AnalysisBilal Mughal
The document discusses different types of costs including:
1. Accounting costs include expenses incurred during production adjusted for depreciation, while economic costs include explicit payments to factors of production as well as implicit opportunity costs.
2. In the short-run, costs are classified as fixed, variable, total, average fixed, average variable, and marginal based on their relationship to changing output levels.
3. In the long-run, all factors are variable and long-run total, average, and marginal cost curves are defined based on minimum cost production at different output scales.
This document discusses cost behavior and different types of costs. It defines variable costs as changing proportionally with activity level and fixed costs as remaining constant despite changes in activity. Total and per-unit cost behaviors are examined for variable and fixed costs. Examples are provided to illustrate concepts. Methods for analyzing mixed costs are presented, including high-low, scattergraph, and least squares regression. The contribution format income statement is introduced as a way to organize costs by behavior.
- Product K is nearing the end of its lifecycle and should be priced at $75 per unit to maximize contribution during the maturity stage, allowing 480 units of Product L to be produced per week.
- Product L is in the growth stage and should be priced at $126 per unit to maximize contribution while meeting the 2,000 hour weekly production capacity.
- Product M is highly innovative and will change the market, making it well-suited for a market skimming pricing strategy during the introduction stage.
This summary provides an overview of key concepts from differential cost analysis and incremental decision making:
Differential cost analysis focuses on the differences in costs and revenues between alternative choices. It considers only costs and revenues that change with the decision. Incremental analysis compares the incremental revenue to the incremental costs of various options to determine the most profitable choice. For example, a company may analyze whether to make or buy a product based on the incremental costs and revenues of each option.
pricing involves the customer demand schedule, the cost function, and competitors’ prices. The question is how should a company integrate cost-, demand-, and competition-based pricing considerations? In setting a price the firm, for example Kodak, will have to consider the following cost-, demand-, and competition-based pricing decisions:
This document discusses developing pricing strategies and programs. It covers understanding pricing, setting prices, adapting prices, and initiating and responding to price changes. Some key points include:
- Pricing must be consistent with a firm's marketing strategy and target markets. Price is determined by costs, demand, competitors, and consumer psychology.
- Technologies like the internet have increased price transparency and consumer power. Consumers actively process various price information and signals.
- Firms estimate costs, demand, and analyze competitors to determine an appropriate pricing method and final price. Methods include markup, target return, and value-based pricing.
- Prices must be adapted based on location, time of year, product life cycle stage,
This chapter discusses pricing strategies and concepts. It begins by explaining how the internet affects pricing through individualization and interactivity. It then covers the economics of pricing including demand curves, costs, and profit maximization. The chapter explores basic strategies like everyday low pricing and promotions. It also examines dynamic strategies such as auctions and algorithms. Additionally, the chapter discusses responding to competitor price changes, implementing prices across customer relationships, and concludes with an example of pricing on eBay.
The document discusses key concepts related to pricing, including defining price from the perspective of sellers and consumers. It explains approaches to selecting base price levels, such as demand-oriented, cost-oriented, profit-oriented, and competition-oriented. The document also covers calculating total revenue and costs, estimating demand curves, break-even analysis, pricing objectives and constraints that firms consider when determining prices.
How to Price Effectively to Boost Your Company's Growth and ProfitsSurefire Local
Most contractors base their pricing on the cost of materials without necessarily realizing that money is often left on the table.
Professor Dholakia (top marketing thought-leader and George R. Brown Professor of Marketing at Rice University), shares actionable steps your business can take to price its services more effectively.
Some of the things you'll learn are:
- How to raise prices without actually raising prices
- The role of customer value and reference prices in setting prices
- The importance of price execution
- How to evaluate success of your pricing decisions
This document discusses costing and pricing strategies for businesses. It defines different types of costs like direct, indirect, fixed and variable costs. It also explains how to calculate the cost per unit of production and break-even point. The document then discusses various pricing strategies like premium pricing, penetration pricing, price skimming, economy pricing and psychological pricing. It emphasizes the importance of understanding costs and setting the right price point to maximize profits.
This document provides an overview of pricing strategies and concepts for MBA marketing management. It discusses 1) the theory of pricing including price elasticity and how costs, demand, and competition influence pricing, 2) pricing objectives like profit maximization, 3) strategic determinants of price like costs, demand, and competition, and 4) pricing strategies like market skimming, penetration pricing, and promotional pricing that are used at different stages of a product's lifecycle.
The document discusses pricing, including defining price, the goals of pricing, and pricing strategies. It begins by defining price as the amount charged for a product or service. The goals of pricing include gaining market share, return on investment, and meeting competition. Pricing strategies discussed include cost-based pricing, demand-based pricing, competition-based pricing, and combinations of strategies. The document also covers pricing policies, the product life cycle, psychological pricing techniques, break-even analysis, and factors affecting pricing decisions.
The document discusses various factors and strategies involved in price determination and pricing policies. It covers objectives of pricing, factors affecting pricing like costs, demand, competition and regulations. It then describes different pricing strategies such as cost-based pricing, target return pricing, competition-based pricing, demand-based pricing, product line pricing, bundle pricing, promotional pricing, geographical pricing etc. Examples are given to illustrate concepts like determining price based on costs and desired returns. Marginal cost pricing is also explained along with perceived value pricing and competition-based pricing methods.
The document defines efficiency as producing goods and services at the lowest possible cost to provide the greatest value. Markets are efficient when marginal cost equals marginal benefit. When price is lower than value, consumers enjoy surplus, and when price exceeds costs, producers earn surplus. However, markets can be inefficient due to price controls, taxes/subsidies, monopoly, public goods, and externalities, resulting in deadweight loss to society.
Introduction to Managerial Economics.pptxmarvin173254
This document provides an introduction to key concepts in managerial economics. It outlines 7 learning objectives, including understanding the nature of managerial economics and how it applies economic tools to business decision-making. Some key concepts covered are supply and demand analysis, cost analysis, pricing strategies, market structure, and risk analysis. It also discusses the scope of managerial economics, advantages like informed decision-making, and potential disadvantages like simplified assumptions. Important economic concepts for managers like marginal analysis, time value of money, incentives, and profits are explained.
This document discusses various pricing strategies and concepts, including cost-plus pricing, value pricing, and economic value to the customer (EVC). Cost-plus pricing involves determining costs and adding a markup percentage, but it does not consider customer perceived value. Value pricing is based on the product's value to the customer. EVC analysis aims to objectively quantify the value customers receive from product attributes compared to alternatives. The document provides examples and guidelines for applying these pricing strategies, especially using market testing and research to inform price setting.
The document discusses several factors to consider when setting prices, including internal factors like costs, marketing objectives, and the marketing mix, as well as external factors like competitors' prices, demand, and the type of market. It also covers different pricing approaches like cost-plus pricing, which adds a standard markup to costs, breakeven analysis to determine the price needed to break even or make a target profit, and competition-based pricing which sets prices based on competitors.
Is1 workshop 6 make, take & sell challenge studentmoduledesign
This document discusses strategies for pricing a new product. It begins with an overview of determining the right pricing strategy to ensure a product is commercially viable and appealing to customers. It then outlines three key learning outcomes related to developing an optimal pricing structure, conducting a cost analysis, and evaluating different pricing approaches. Several pricing strategies are then examined in more detail, including cost-based pricing, value-based pricing, and psychological pricing. Groups are assigned tasks to discuss factors that influence pricing, consider costs for their product, and determine an appropriate pricing strategy.
Microeconomics analyzes individual behavior such as consumers, producers, and prices of individual commodities. Pricing strategies aim to improve profits and include cost-plus pricing, skimming, market-oriented pricing, penetration pricing, and premium pricing. Factors affecting price include supply and demand. If demand increases while supply stays the same, price increases, and if supply increases while demand stays the same, price decreases. Different market structures like monopolistic competition and oligopoly give producers varying degrees of control over pricing. For cloth, prices are higher during festivals and weddings when demand exceeds supply, and lower at other times when supply exceeds demand. In monopolistic competition, firms can't charge too high a price but a little more
The document discusses marketing communication and promotional planning. It describes the traditional one-way communication model and the newer many-to-many model enabled by technology and social media. The traditional promotional mix including advertising, sales promotion, public relations, and personal selling is also covered. Finally, the document outlines the five steps of developing a promotional plan: establishing objectives and strategies, selecting target markets, determining budgets, designing the promotional mix, and evaluating effectiveness.
The document discusses key concepts in retailing including defining retailing and different types of retailers. It covers the retail life cycle and factors that influence the future of retailing like technology, demographics, and globalization. The document also examines the importance of store image and elements retailers use to create a desirable image like store design, atmospherics, layout, visual merchandising, and pricing.
The document discusses supply chain management and distribution channels. It defines supply chain management as managing flows among firms to maximize profits, and defines distribution channels as the series of firms that facilitate moving products from producers to customers. It also discusses channel functions like transportation and storage, and different types of channels like consumer and business-to-business channels. The document concludes by discussing logistics and inventory control.
The document discusses the rise of social media marketing and provides statistics on current and projected spending. It defines social media marketing and lists common goals. Examples are given of successful social media campaigns by Mountain Dew and Old Spice. Key aspects of social media marketing identified are engaging and communicating with audiences, allowing consumer feedback, and leveraging user-generated content for promotional efforts.
This document discusses marketing services and intangible offerings. It describes the key characteristics of services, including intangibility, perishability, variability and inseparability. It also discusses classifying services on a continuum from core to augmented. Measuring service quality using tools like SERVQUAL and managing the service environment or "servicescape" are also covered. The importance of effective service recovery when problems arise is also highlighted.
This document discusses product and branding strategies. It covers the product life cycle (PLC) model which explains how market response and marketing activities change over a product's lifetime. The PLC includes introduction, growth, maturity, and decline stages. Branding is also discussed as creating relationships with customers through symbols, names, and unique identifiers for products. Strong brands have high brand equity which provides a pricing premium over generic competitors. Packaging is also mentioned as an important part of branding that protects products and communicates with customers.
Chapter 13 - Advertising, PR and Consumer Sales PromotionsNicholsb1
This document provides an overview of advertising, public relations, and consumer sales promotions. It discusses the major types of advertising and the criticisms of advertising. The document describes the process of developing an advertising campaign, including setting objectives, creating the message, pretesting ads, choosing media, and evaluating the campaign. It also explains the role of public relations and the steps to develop a PR campaign. Finally, the document defines sales promotions and describes various types of consumer sales promotion techniques.
The document summarizes key aspects of business-to-business marketing including characteristics of B2B markets and demand, different buying situations, and the business buying decision process. It describes how B2B demand differs from consumer demand in being derived, inelastic, and fluctuating. It also outlines the 5 steps in the business buying decision process - problem recognition, information search, evaluation of alternatives, selection of product/supplier, and post-purchase evaluation.
This idea may undermine the ritual and community experience that is core to Starbucks' mission and brand identity. Portable Starbucks does not seem compatible. Let's generate other ideas that enhance rather than detract from their core value proposition.
The document discusses market segmentation, targeting, and positioning. It covers identifying different customer segments based on variables like demographics, behaviors, and preferences. Marketers evaluate these segments to select the most attractive ones to target. They then develop positioning strategies to create competitive advantage by developing products and messages tailored to meet the specific needs of targeted segments. The goal is to increase long-term success and profits through customer relationship management.
The document provides an overview of consumer behavior and the factors that influence purchasing decisions. It defines consumer behavior and outlines the 5 stages of the purchase decision process. It then describes various internal factors, such as motivation, learning, perceptions, attitudes, and personal characteristics like demographics and psychographics. Finally, it discusses situational influences on consumer behavior, including physical environment, social groups, culture, rituals and values, and opinion leaders. The document is presenting information on consumer purchasing behaviors and the factors that marketers consider when developing advertising and marketing strategies.
Here are drawings of reliability and validity:
Reliability: Validity:
___________ ___________
The length and consistency of the line represents reliability - doing the same measurement repeatedly and getting consistent results.
The circle represents validity - measuring what you intended to measure. Ensuring your measurement is actually measuring the construct you want to measure.
The chapter discusses how globalization and new technologies have integrated ideas, information, products, services and cultures worldwide. It explains that the internet, advanced technologies, multiculturalism and multinational brands have contributed to a "flat world". The chapter then outlines the global market decision process firms go through, including analyzing whether to enter foreign markets and which markets to target. It also discusses factors like world trade flows, economic communities, and how the external business environment influences marketing strategies.
The document discusses business and marketing planning, noting that business planning is an ongoing process to prepare for the future and reach goals in the short and long term, while a marketing plan details marketing strategies, objectives, and responsibilities. It also discusses the importance of strategic planning in identifying opportunities and matching competencies to market needs, as well as the role of ethics and a company's mission and vision in guiding planning. The levels of planning within an organization should be integrated to benefit the whole.
The document discusses the concepts of marketing, including how marketing aims to identify and satisfy customer needs and wants through products and services that provide benefits to customers, organizations, and society. It explains that marketing involves activities like product development, promotion, distribution, and pricing to create, communicate, deliver, and exchange value for all involved parties. The document also differentiates between needs, which fulfill basic physiological requirements, and wants, which are culturally and socially influenced desires to satisfy needs in specific ways.
How are Lilac French Bulldogs Beauty Charming the World and Capturing Hearts....Lacey Max
“After being the most listed dog breed in the United States for 31
years in a row, the Labrador Retriever has dropped to second place
in the American Kennel Club's annual survey of the country's most
popular canines. The French Bulldog is the new top dog in the
United States as of 2022. The stylish puppy has ascended the
rankings in rapid time despite having health concerns and limited
color choices.”
How to Implement a Real Estate CRM SoftwareSalesTown
To implement a CRM for real estate, set clear goals, choose a CRM with key real estate features, and customize it to your needs. Migrate your data, train your team, and use automation to save time. Monitor performance, ensure data security, and use the CRM to enhance marketing. Regularly check its effectiveness to improve your business.
Unveiling the Dynamic Personalities, Key Dates, and Horoscope Insights: Gemin...my Pandit
Explore the fascinating world of the Gemini Zodiac Sign. Discover the unique personality traits, key dates, and horoscope insights of Gemini individuals. Learn how their sociable, communicative nature and boundless curiosity make them the dynamic explorers of the zodiac. Dive into the duality of the Gemini sign and understand their intellectual and adventurous spirit.
Event Report - SAP Sapphire 2024 Orlando - lots of innovation and old challengesHolger Mueller
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3. $1,000 Your job is to buy the “ best ” Oriental rug. One rug is priced at $800 while another is priced at $1000. Which one is the best? How did you make that decision? $800
4. What should we charge? What can we charge? Marketing Mix Product Place Promotion Price
5. Why care about price? 1% improvement in… operating profit improvement of… Price Variable Cost Volume Fixed Cost 11.1% 7.8% 3.3% 2.3% The Biggest Lever the Marketer Has …
6.
7. Price & Value $Price is not just a dollar figure$ What are the non-monetary costs associated with acquiring a product/service? * TIME * CONVENIENCE * PSYCHOLOGICAL * SENSORY
8. Case in point.... A gym membership costs $50 per month. What are the non-monetary “ costs ” associated with the membership? * TIME * CONVENIENCE * PSYCHOLOGICAL * SENSORY
9. Pricing Services is… Convenience/Time Actual Price Time/Convenience Time/Convenience Psychological/sensory Really Hard Dentist Cost for Filling Distance to Dentist Wait Period for an Appointment Time in Waiting Room Anesthesia A $50 15 miles 3 Weeks 1.5 hour None B $75 15 miles 1 Week .5 hour Novocain C $125 3 miles 1 Week 1 hour Novocain D $200 3 miles 1 Week No wait Nitrous Oxide and Novocain Variability
The chapter begins by asking the question, “ What is price? ” At first glance, students may think the question has an obvious answer—the number printed on the price sticker. However, as students explore this chapter, they will discover that price is a whole lot more. Price is a function of demand, costs, revenue, and the environment. Pricing can be monetary or non-monetary. Pricing decisions lead to specific pricing strategies and tactics, discussed in the chapter. Students also learn about the psychological aspect of pricing, as well as legal, and ethical aspects of pricing. The chapter begins by asking the question, “ What is price? ” At first glance, students may think the question has an obvious answer—the number printed on the price sticker. However, as students explore this chapter, they will discover that price is a whole lot more. Price is a function of demand, costs, revenue, and the environment. Pricing can be monetary or non-monetary. Pricing decisions lead to specific pricing strategies and tactics, discussed in the chapter. Students also learn about the psychological aspect of pricing.
“ Yes, But what Does It Cost? ” The question of what to charge for a product is a central part of marketing decision making.
What is Price? Price is the assignment of value, or the amount the consumer must exchange to receive the offering or product. Payment may be in the form of money, goods, services, favors, votes, or anything else that has Value to the other party. Other non-monetary costs often are important to marketers. It is also important to consider an opportunity cost, or the value of something that is given up to obtain something else.
Step 1: Develop Pricing Objectives The first crucial step in price planning is to develop pricing objectives. These must support the broader objectives of the firm, such as maximizing shareholder value, as well as its overall marketing objectives, such as increasing market share Profit Objectives Often a firm ’ s overall objectives relate to a certain level of profit it hopes to realize. This is usually the case in B2B marketing. When pricing strategies are determined by profit objectives, the focus is on a target level of profit growth or a desired net profit margin. A profit objective is important to firms that believe profit is what motivates shareholders and bankers to invest in a company. Sales or Market Share Objectives However, lowering prices is not always necessary to increase market share. If a company ’ s product has a competitive advantage, keeping the price at the same level as other firms may satisfy sales objectives. Competitive Effect Objectives Sometimes strategists design the pricing plan to dilute the competition ’ s marketing efforts. In these cases, a firm may deliberately try to preempt or reduce the impact of a rival ’ s pricing changes Customer Satisfaction Objectives Many quality-focused firms believe that profits result from making customer satisfaction the primary objective. These firms believe that by focusing solely on short-term profits, a company loses sight of keeping customers for the long term. Image Enhancement Objectives Consumers often use price to make inferences about the quality of a product. In fact, marketers know that price is often an important means of communicating not only quality but also image to prospective customers. The image enhancement function of pricing is particularly important with prestige products (or luxury products), which have a high price and appeal to status-conscious consumers.
Step 1: Develop Pricing Objectives The first crucial step in price planning is to develop pricing objectives. These must support the broader objectives of the firm, such as maximizing shareholder value, as well as its overall marketing objectives, such as increasing market share Profit Objectives Often a firm ’ s overall objectives relate to a certain level of profit it hopes to realize. This is usually the case in B2B marketing. When pricing strategies are determined by profit objectives, the focus is on a target level of profit growth or a desired net profit margin. A profit objective is important to firms that believe profit is what motivates shareholders and bankers to invest in a company. Sales or Market Share Objectives However, lowering prices is not always necessary to increase market share. If a company ’ s product has a competitive advantage, keeping the price at the same level as other firms may satisfy sales objectives. Competitive Effect Objectives Sometimes strategists design the pricing plan to dilute the competition ’ s marketing efforts. In these cases, a firm may deliberately try to preempt or reduce the impact of a rival ’ s pricing changes Customer Satisfaction Objectives Many quality-focused firms believe that profits result from making customer satisfaction the primary objective. These firms believe that by focusing solely on short-term profits, a company loses sight of keeping customers for the long term. Image Enhancement Objectives Consumers often use price to make inferences about the quality of a product. In fact, marketers know that price is often an important means of communicating not only quality but also image to prospective customers. The image enhancement function of pricing is particularly important with prestige products (or luxury products), which have a high price and appeal to status-conscious consumers.
Step 2: Estimate Demand The second step in price planning is to estimate demand. Demand refers to customers ’ desires for a product: How much of a product are they willing to buy as the price of the product goes up or down? Demand Curves Economists use a graph of a demand curve to illustrate the effect of price on the quantity demanded of a product. The demand curve, which can be a curved or straight line, shows the quantity of a product that customers will buy in a market during a period at various prices if all other factors remain the same. The demand curve for most goods slopes downward and to the right. As the price of the product goes up the number of units that customers are willing to buy goes down. If prices decrease, customers will buy more. This is the <emphasis> law of demand . For example, if the price of bananas goes up, customers will probably buy fewer of them. In fact, there are situations in which (otherwise sane) people desire a product more as it increases in price. For prestige products such as luxury cars or jewelry, a price hike may actually result in an in the quantity consumers demand because they see the product as more valuable. In such cases, the demand curve slopes upward. The higher-price/higher-demand relationship has its limits. If the firm increases the price too much, to making the product unaffordable for all but a few buyers, demand will begin to decrease.
3.1.2 Shifts in Demand The demand curves we have shown assume that all factors other than price stay the same. However, what if they do not? What if the company improves the product? What happens when there is a glitzy new advertising campaign that turns a product into a “ must-have ” for many people? What if stealthy paparazzi i catch Brad Pitt using the product at home? Any of these things could cause an upward shift of the demand curve. An upward shift in the demand curve means that at any given price, demand is greater than before the shift occurs. Demand curves may also shift downward. Estimate Demand Marketers predict total demand first by identifying the number of buyers or potential buyers for their product and then multiplying that estimate times the average amount each member of the target market is likely to purchase. Once the marketer estimates total demand, the next step is to predict what the company ’ s market share is likely to be. The company ’ s estimated demand is then its share of the whole market. Such projections need to take into consideration other factors that might affect demand, such as new competitors entering the market, the state of the economy, and changing customer tastes.
Price Elasticity of Demand Marketers also need to know how their customers are likely to react to a price change. In particular, it is critical to understand whether a change in price will have a large or a small impact on demand. Price elasticity of demand is a measure of the sensitivity of customers to changes in price. The word elasticity indicates that changes in price usually cause demand to stretch or retract like a rubber band. Some customers are very sensitive to changes in price, and a change in price results in a substantial change in the quantity demanded. In such instances, we have a case of elastic demand. In other situations, we describe a change in price that has little or no effect on the quantity that consumers are willing to buy as inelastic demand. When demand is elastic, changes in price and in total revenues work in opposite directions. If the price is increased, revenues decrease. If the price is decreased, total revenues increase. In some instances, demand is inelastic so that a change in price results in little or no change in demand. When demand is inelastic, price and revenue changes are in the same direction; that is, increases in price result in increases in total revenue, while decreases in price result in decreases in total revenue. Elasticity of demand for a product often differs for different price levels and with different percentages of change. As a rule, businesses can determine the actual price elasticity only after they have tested a pricing decision and calculated the resulting demand. To estimate what demand is likely to be at different prices for new or existing products, marketers often do research. Other factors can affect price elasticity and sales. Consider the availability of substitute goods or services. If a product has a close substitute, its demand will be elastic; that is, a change in price will result in a change in demand, as consumers move to buy the substitute product. Marketers of products with close substitutes are less likely to compete on price because they recognize that doing so could result in less profit as consumers switch from one brand to another. Changes in prices of other products also affect the demand for an item, a phenomenon we label cross-elasticity of demand When products are substitutes for each other, an increase in the price of one will increase the demand for the other. For example, if the price of bananas goes up, consumers may instead buy more strawberries, blueberries, or apples. However, when products are complements < hat is, when one product is essential to the use of a second—an increase in the price of one decreases the demand for the second.
Step 3: Determine Costs Estimating demand helps marketers determine possible prices to charge for a product. It tells them how much of the product they think they will be able to sell at different prices. Knowing this brings them to the third step in determining a product ’ s price: making sure the price will cover costs. Before marketers can determine price, they must understand the relationship of cost, demand, and revenue for their product.
Variable and Fixed Costs First, a firm incurs variable costs —the per-unit costs of production that will fluctuate depending on how many units or individual products a firm produces. Variable costs can go down with higher levels of production but do not always do so. Fixed costs are costs that do not vary with the number of units produced—the costs that remain the same whether the firm produces 1,000 bookcases this month or only 10. Fixed costs include rent or the cost of owning and maintaining the factory, utilities to heat or cool the factory, and the costs of equipment such as hammers, saws, and paint sprayers used in the production of the product. Average fixed cost is the fixed cost per unit produced, that is, the total fixed costs divided by the number of units produced. Although total fixed costs remain the same no matter how many units are produced, the average fixed cost will decrease as the number of units produced increases. As we produce more and more units, average fixed costs go down, and so does the price we must charge to cover fixed costs. In the long term, total fixed costs may change. Combining variable costs and fixed costs yields total costs for a given level of production. As a company produces more and more of a product, both average fixed costs and average variable costs may decrease. Average total costs may decrease, too, up to a point. As output continues to increase, average variable costs may start to increase. These variable costs ultimately rise faster than average fixed costs decline, resulting in an increase to average total cost. As total cost fluctuates with differing levels of production, the price that producers have to charge to cover those costs changes accordingly. Therefore, marketers need to calculate the minimum price necessary to cover all costs—the break-even price . Break-Even Analysis Break-even analysis is a technique marketers use to examine the relationship between cost and price and to determine what sales volume must be reached at a given price before the company will completely cover its total cost and past which it will begin making a profit. Simply put, the break-even point is the point at with the company does not lose any money and does not make any profit. A break-even analysis allows marketers to identify how many units of a product they will have to sell at a given price to be profitable. To determine the break-even point, the firm first needs to calculate the contribution per unit , or the difference between the prices the firm charges for a product (the revenue per unit) and the variable costs. This figure is the amount the firm has after paying for the goods that contribute to meeting the fixed costs of production. Often a firm will set a profit goal, which is the dollar profit figure it desires to earn. The break-even point may be calculated with that dollar goal included in the figures. Sometimes the target return or profit goal is expressed as a percentage of sales . For example, a firm may say that it wants to make a profit of at least 10 percent on sales. In such cases, this profit is added to the variable cost in calculating the break-even point. Break-even analysis does not provide an easy answer for pricing decisions. It provides answers about how many units the firm must sell to break even and to make a profit, but without knowing whether demand will equal the quantity at that price, companies can make big mistakes. It is, therefore, useful for marketers to estimate the demand for their product and then perform a marginal analysis.
Markups and Margins: Pricing Through the Channel So far, we have talked about costs simply from the manufacturer ’ s perspective. However, in reality, most products are not sold directly to the consumers or business buyers of the product. Instead, a manufacturer sells to a wholesaler, distributor, or jobber who in turn sells to a retailer who finally sells the product to the ultimate consumer. Setting prices means considering all of these steps.
Step 4: Evaluate The Pricing Environment Marketers look at factors in the firm ’ s external environment when they make pricing decisions. The fourth step in developing pricing strategies is to examine and evaluate the pricing environment. Only then can marketers set a price that not only covers costs but also provides a competitive advantage—a price that meets the needs of customers better than the competition The Economy Broad economic trends tend to direct pricing strategies. The business cycle, inflation, economic growth, and consumer confidence all help to determine whether one pricing strategy or another will succeed. During recessions , consumers grow more price sensitive. Many firms find it necessary to cut prices to levels at which costs are covered but the company does not make a profit to keep factories in operation. Inflation may give marketers cause to either increase or decrease prices. First, inflation gets customers used to price increases. They may remain insensitive to price increases, even when inflation goes away, allowing marketers to make real price increases. In periods of recession, inflation may cause marketers to lower prices and temporarily sacrifice profits in order to maintain sales levels. The Competition Marketers try to anticipate how the competition will respond to their pricing actions. It is not always a good idea to fight the competition with lower prices. Pricing wars can change consumers ’ perceptions of what is a “ fair ” price, leaving them unwilling to buy at previous price levels. Generally, firms that do business in an oligopoly (in which the market has few sellers and many buyers) are more likely to adopt status quo pricing objectives in which the pricing of all competitors is similar. Avoiding price competition allows all players in the industry to remain profitable. Firms in a purely competitive market have little opportunity to raise or lower prices. Price is directly influenced by supply and demand. Government Regulation Governments in the U.S. and other countries develop two different types of regulations, which have an effect on pricing. First, a large number of regulations increase the costs of production. Regulations for health care, environmental protection, occupational safety, and highway safety, just to mention a few, cause the costs of producing many products to increase. Other regulations of specific industries such as those imposed by the Food and Drug Administration (FD) on the production of food and pharmaceuticals increase the costs of developing and producing those products. In addition, some regulations directly address prices. Consumer Trends Consumer trends also can strongly influence prices. Culture and demographics determine how consumers think and behave and so these factors have a large impact on all marketing decisions. The International Environment The marketing environment often varies widely from country to country. This can have important consequences in developing pricing strategies.
PRICING THE PRODUCT: ESTABLISHING STRATEGIES AND TACTICS In modern business, there seldom is any one-and-only, now-and-forever, and best pricing strategy. Like playing a game of chess, making pricing moves and countermoves requires thinking two and three moves ahead. Step 5: Choose a Pricing Strategy The next step in price planning is to choose a pricing strategy. Pricing Strategies Based on Cost Marketing planners often choose cost-based strategies because they are simple to calculate and relatively risk free. They promise that the price will at least cover the costs the company incurs in producing and marketing the product. Cost-based pricing methods have drawbacks, however. They do not consider such factors as the nature of the target market, demand, competition, the product life cycle, and the product ’ s image. The calculations for setting the price may be simple and straightforward but accurate cost estimating may prove difficult. The most common cost-based approach to pricing a product is cost-plus pricing in which the marketer totals all the costs for the product and then adds an amount (or marks up the cost of the item) to arrive at the selling price. Many marketers use cost-plus pricing because of its simplicity—users need only estimate the unit cost and add the markup. To calculate cost-plus pricing, marketers usually calculate either a markup on cost or a markup on selling price. Pricing Strategies Based on Demand Demand-based pricing means that the firm bases the selling price on an estimate of volume or quantity that it can sell in different markets at different prices. Firms must determine how much product they can sell in each market and at what price. Today, firms find that they can be more successful if they match price with demand using a target costing process. They first determine the price at which customers would be willing to buy the product and then works backward to design the product in such a way that it can produce and sell the product at a profit. With target costing, firms first use marketing research to identify the quality and functionality needed to satisfy attractive market segments and what price they are willing to pay before the product is designed . The next step is to determine what margin retailers and dealers require as well as the profit margin the company requires. Based on this information, managers can calculate the target cost—the maximum it will cost the firm to manufacture the product. If the firm can meet customer quality and functionality requirements and control costs to meet the required price, it will manufacture the product. Yield management pricing, another type of demand-based pricing, is a pricing strategy used by airlines, hotels, and cruise lines. Firms charge different prices to different customers in order to manage capacity while maximizing revenue. This strategy works because different customers have different sensitivities to price. The goal of yield management pricing is to accurately predict the proportion of customers who fall into each category and allocate the percentage of the airline or hotel ’ s capacity accordingly so that no product goes unsold. Pricing Strategies Based on the Competition Sometimes a firm ’ s pricing strategy involves pricing its wares near, at, above, or below the competition. A price leadership strategy, which usually is the rule in an industry dominated by few firms and called an oligopoly, may be in the best interest of all firms because it minimizes price competition. Price leadership strategies are popular because they provide an acceptable and legal way for firms to agree on prices without ever talking with each other. Pricing Strategies Based on Customers ’ Needs When firms develop pricing strategies that cater to customers, they are less concerned with short-term results than with keeping customers for the long term. Firms that practice value pricing or everyday low pricing (EDLP), develop a pricing strategy that promises ultimate value to consumers. What this means is that, in the customer ’ s eyes, the price is justified by what they receive. When firms base price strategies solely or mainly on cost, they are operating under the old production orientation and not a customer orientation. Value-based pricing begins with customer, then considers the competition, and then determines the best pricing strategy. New Product Pricing When a product is new to the market or when there is no established industry price norm, marketers may use a skimming price strategy, a penetration pricing strategy, or trial pricing when they first introduce the item to the market. Setting a skimming price means that the firm charges a high, premium price for its new product with the intention of reducing it in future response to market pressure. If a product is highly desirable and it offers unique benefits, demand is price inelastic during the introductory stage of the product life cycle, allowing a company to recover research-and-development and promotion costs. When rival products enter the market, the price is lowered in order for the firm to remain competitive. Firms focusing on profit objectives in developing their pricing strategies often set skimming prices for new products. A skimming price is more likely to succeed if the product provides some important benefits to the target market that make customers feel they must have it no matter what the cost. For a skimming price to be successful there should also be little chance that competition can get into the market quickly. In addition, the market should consist of several customer segments with different levels of price sensitivity. Penetration pricing is the opposite of skimming pricing. In this situation, the company prices a new product very low to sell more in a short time and gain market share early on. One reason marketers use penetration pricing is to discourage competitors from entering the market. The firm first out with a new product has an important advantage. Experience shows that a pioneering brand often is able to maintain dominant market share for long periods. Penetration pricing may act as a barrier-to-entry for competitors if the prices the market will bear are so low that the company will not be able to recover development and manufacturing costs. Trial pricing means that a new product carries a low price for a limited time to generate a high level of customer interest. Unlike penetration pricing, in which the company maintains the low price, in this case it increases the trial price after the introductory period. The idea is to win customer acceptance first and make profits later.
Pricing for Multiple Products A firm may sell several products that consumers typically buy at one time. Price bundling means selling two or more goods or services as a single package for one price—a price that is often less than the total price of the items if bought individually. Captive pricing is a pricing tactic a firm uses when it has two products that work only when used together. The firm sells one item at a very low price and then makes its profit on the second high-margin item.
Psychological Pricing Strategies Setting a price is part science, part art. Marketers must understand psychological aspects of pricing when they decide what to charge for their products or services. 6.2.1 Odd-Even Pricing Marketers have assumed that there is a psychological response to odd prices that differ from the responses to even prices. Habit may also play a role. Research on the difference in perceptions of odd versus even prices indeed supports the argument that prices ending in 99 rather than 00 lead to increased sales. Some prices are set at even numbers because of necessity. Lottery tickets and admission to sporting events are two examples. Many luxury items such as jewelry, golf course fees, and resort accommodations use even dollar prices to set them apart. When prices are given with dollar signs or even the word dollar, customers spend less. 6.2.2 Price Lining Marketers often apply their understanding of the psychological aspects of pricing in a practice they call price lining , whereby items in a product line sell at different prices, or price points . If you want to buy a new digital camera, you will find that most manufacturers have one “ stripped-down ” model for $100 or less. A better-quality but still moderately priced model likely will be around $200, while a professional quality camera with multiple lenses might set you back $1,000 or more. Price lining provides the different ranges necessary to satisfy each segment of the market. For marketers this technique is a way to maximize profits. A firm charges each customer the highest price the he is willing to pay. 6.2.3 Prestige Pricing Sometimes luxury goods marketers use a prestige pricing strategy that turns the typical assumption about price-demand relationships on its head: Contrary to the “ rational ” assumption that we value a product or service more as the price goes down, in these cases, believe it or not, people tend to buy more as the price goes up