MGCR 352 Lecture Notes - Lecture 14: Profit Maximization, Costco
1 Nov 2016
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Lecture'14'
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Steps!in!Setting!Price)
1. Identify!pricing!constraints!and!objectives!
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2. Estimating!Demand!and!Revenue!
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3. Estimating!Cost,!Volume,!and!Product!Relationships!
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4. Selecting!an!Approximate!Price!Level!
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Document Summary
Identify pricing constraints and objectives: constraints like demand for product class and brand, newness, cost, and competition, factors that limit how flexible firms are in setting price. Competitor"s price: objectives like profit, market share, and survival. Profit: profit maximization, target profit - aiming for a predetermined return on investment (roi) Sales: market share - maximize unit volume or sales volume. Skimming pricing - start with high price to catch price insensitive customers and then lower price: very little competition, strong patent. Penetration pricing - start with low price to attract mass market: competition exists, no patent. Yield management pricing - different prices over time for set amount of capacity: e. g. plane tickets, hotels, priced based on demand, cost oriented approach - focusing on production and marketing costs. Standard markup pricing - adding fixed percentage to cost. Cost-plus pricing - adding specific amount to cost: profit oriented approach - focusing on balancing both revenue and cost.
