MARK1012 Lecture Notes - Lecture 9: Premium Pricing, Price War, Status Quo
Chapter 11 - Pricing
Company Objectives
• Profit-oriented
Target profit pricing – certain profit goal as overriding concern
Maximizing profits – using accurate mathematical model
Target return pricing – earn specific ROI (usually % of sales)
• Sales-oriented
Believe that increasing sales will help firm more than increasing profits
Premium pricing – firm deliberately prices product above prices set for
competing products to capture customers who shop for best products
• Competitor-oriented
Measure themselves primarily against competition
Competitive parity – set prices similar to major competitors
Status quo pricing – changes prices only to meet those of competition
• Customer-oriented
Firm sets pricing strategy based on how it can add value to goods/services
High-pried, state-of-the-art goods/series ehae reputatio, image and
therefore company value in eyes of consumers
Customers
• Demand curve – how many units of a product consumers will demand during specific
time frame at different prices
• Prestige goods/services – higher price = higher demand
• Price elasticity of demand – change in quantity demanded from change in price
• Customers generally more sensitive to price increases than price decreases
• Income effect – change in quantity demanded due to change in income
Costs
• Understanding cost structures to determine degree to which their goods/services
will be profitable at different prices
• Variable costs – vary with production volume (e.g. labor & materials)
• Fixed costs – remain essentially the same for any volume of production (rent,
insurance)
• Break-even Analysis – determining point at which number of units sold generates
enough revenue to equal total costs
In units: BEP = FC / Contribution per unit
Competition
• Monopoly – one firm controls market
• Oligopolistic competition – handful of firms control market
Price war occurs when two or more firms compete by lowering prices
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Document Summary
Target profit pricing certain profit goal as overriding concern. Maximizing profits using accurate mathematical model. Target return pricing earn specific roi (usually % of sales: sales-oriented. Believe that increasing sales will help firm more than increasing profits. Premium pricing firm deliberately prices product above prices set for competing products to capture customers who shop for best products: competitor-oriented. Competitive parity set prices similar to major competitors. Status quo pricing changes prices only to meet those of competition: customer-oriented. Firm sets pricing strategy based on how it can add value to goods/services. High-pri(cid:272)ed, (cid:858)state-of-the-art(cid:859) goods/ser(cid:448)i(cid:272)es e(cid:374)ha(cid:374)(cid:272)e reputatio(cid:374), image and therefore company value in eyes of consumers. Costs: understanding cost structures to determine degree to which their goods/services. In units: bep = fc / contribution per unit. Competition: monopoly one firm controls market, oligopolistic competition handful of firms control market. Price war occurs when two or more firms compete by lowering prices.
