MKT 100 Lecture Notes - Lecture 10: Price Floor, Advanced Vector Extensions, Geographical Pricing
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MKT 100 March 30, 2016
Lecture 10 – Chapter 11: Pricing Concepts and Strategies; Establishing Value
Importance of Pricing
Price is the only element of the marketing mix that generates revenue; it is half of the value
The most important factor when pricing is how the customer views the price in relationship to
what he or she receives.
Marketers should view pricing decisions as a strategic opportunity to create value rather than as
The Five Cs of Pricing
1. Company Objectives
o Each firm has a different goal; Walmart is everyday low prices, Holt Renfrew is high prices
equal high fashion image.
o Some common company objectives include:
Profit Orientation – focuses on target profit pricing (have a profit goal to meet),
maximizing profits (relies on economic theory – identify the price at which profits
are maximized), or target return pricing (rate at which their products generate
Sales Orientation – increasing sales will help the firm more than will increasing
Competitor Orientation – the firm should measure itself primarily against its
competition. Some firms use comparative parity where they set prices relatively
close it competitors.
Customer Orientation – explicitly evokes the concept of customer value and
setting prices to match consumer demands.
o The most important ‘C’ of pricing because it’s about understanding consumer reactions
to different prices.
o Demand Curves and Pricing
Knowing the demand curve for a product or service enables a firm to examine
different prices in terms of the resulting demand and relative to its overall
Most products have a downward slope (demand increases as price decreases),
but some products have an upward (demand increases as price increases) and
those are prestige products/services.
o Price Elasticity of Demand
This measures how changes in a price affects the quantity of the product
A product is elastic when small changes in price will generate large changes in
the quantity demanded.
o Factors Influencing Price Elasticity of Demand
Income Effect: change in quantity demanded because change in income.
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