Class Notes (810,237)
Canada (494,016)
Commerce (1,850)

Marketing Chapter 16.docx

4 Pages
Unlock Document

McMaster University
Ambika Badh

Chapter 16 – Pricing Concepts and Strategies Pricing Objectives  Profitability objectives o Profits = revenue – expenses o Total revenue = price x quantity sold o Economic theory  All firms behave rationally  All firms try to maximize profit and minimize loss  Volume objectives o Increased sales volume is ore important in the long run than immediate profits  Market share objective  Try to maximize market share  Profit impact of market studies (PIMS) project  Concentrate on non price factors  Profit in long term depends on market share and quality  Meeting competition budgets o Firms sometimes set prices to match established industry price leaders  Value pricing  Focus on benefits derived from your product in comparison to price and quality of the competitors products  Prestige objectives o Establishing a relatively high price to develop and maintain and image of quality and exclusiveness that appeals to status-conscious consumer  For high priced and luxury goods  Not-for-profit organizations o Pricing strategy helps them achieve specific goals  Profit maximization  Charitable events  Cost recovery  Receiving funding for services provided  Market incentives  Increase consumption of their services  Market suppression  Pricing an item at high pricing so people do not buy Methods for Determining Prices  Prices are traditionally determined in two basic ways o Supply and demand (depends on market structure)  Firms don’t always attempt to maximize profits and demand curves and difficult to analyze o Cost-orientated analysis Chapter 16 – Pricing Concepts and Strategies  Customary prices – traditional price that you are used of paying for a particular product or service  Elasticity – measure of responsiveness of purchasers and suppliers to a change in price o Determinants: substitutes, complement, online transactions, necessity or luxury, income and short/long run  Elasticity of Demand – percentage change of quantity of goods and services demanded divided by percentage change in price  Price determination in practice o Cost plus pricing – adding percentage of specified dollar amount or markup, to the base cost of a product to cover unassigned costs and to provide a profit o Full cost pricing – uses all relevant variable costs in setting a product’s price and allocates those fixed costs not directly attributed to the production of the price item o Incremental cost pricing – attempts to use only cost directly attributable to a specific output in setting prices  Break-even analysis – determine the number of products sold at a price to generate enough revenue to cover total cost o Break even point = total fixed costs/per unit contribution to fixed cost o Target returns  Yield management – allows marketers to vary prices based on such factors as demand even though the cost of providing these goods and services remains the same Pricing Strategies  Skimming pricing o Setting a price for a product above market price o Luxury goods or maintaining an image of quality  Penetration pricing strategy o Highly elastic demand o Low production and marketing costs o High likelihood of attracting strong competitors  Everyday low pricing o Disadvantages: reduces revenue and generate an image of questionable quality  Competitive pricing strategy o Setting price at par with competitors o Focus on non price factors to differentiate products o Opening price point – setting an opening price below that of the competition, usually on a high-quality private label item Price Quotations  List price
More Less

Related notes for COMMERCE 2MA3

Log In


Don't have an account?

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.