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MKT 100 lecture Nov 14 (class 10)

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MKT 100
Anthony Francescucci

Nov 14 MKT 100 Pricing Price is a signal  Prices can be too low or too high  Low price signals poor quality  Overpriced signals low value (rip off) Role of price in marketing mix  Price is usually ranked as one of the most important factors in a purchase decision  Price is the only element of the mix that generates revenue Price needs to  Achieve financial goals of company  Fit environment (will customers buy at that price)  Support product positioning (support price that customers have of product ex: premium brand would want to have high price)  Price has to be consistent with other marketing mix variables Types of supply markets  Monopoly: single supplier which controls price, quality and supply ex: LCBO  Oligopoly: one or two major suppliers, with large start-up investments ex: Microsoft, Linux, MacOS  Monopolistic competition: many suppliers with a variety of products, each of which have a small market share, which are all perceived differently by consumers (ex:restaurants)  Perfect competition: no differentiation between products so consumers don’t really notice a difference with the deciding factor often being price (ex: grapes, apples, corn) Laws of market forces  Demand increases more than supply-price rises  Demand increases less than supply-prices fall  Demand decreases less than supply-prices rise  Demand decreases more than supply-prices fall Price elasticity  Elastic demand: consumers very price sensitive (price changes will have significant changes in demand)  Inelastic demand: consumers not as price sensitive (price changes will not have significant impact on demand Price elasticity and demand  Availability of substitutes: the more available substitutes the greater the elasticity  Degree of necessity or luxury: luxury products have higher elasticity than products which are necessities  Proportion of income: products that represent a higher portion of income of a consumer will be more elastic  Timing: a one day sale will have different results than a permanent price decrease  Price points: decreasing from $2.00 to $1.99 will have more elasticity than from $1.98 to $1.97 Price sensitivity  Price sensitivity is higher when a product is featured  Price sensitivity is higher when the percent of a person’s income spent on a certain product is higher (ex: food in developing countries)  Price sensitivity is high when there are more competitors  Price sensitivity is high when there is a recession  Price sensitivity is high when the cost of searching is low (ex: websites that allow consumers to compare prices) Factors affecting pricing strategies  Reference pricing  Everyday low pricing  Odd prices  Price quantity relationships Reference prices  Internal: thinking about previous prices of a product that you are currently viewing  External: real-time external ques that you see when you are considering a purchase (ex: sale stickers on a “actual” cost tag) Everyday low pricing  With companies that employ these strategies often do not have sales  They market themselves at having “lower prices daily” (Wal-Mart)  This causes consumers to believe that all products sold at these companies are lower, so people will buy there  These come in the form of “rollbacks” at Wal-Mart or “special buys” at Home Depot Setting price 1. Set the price objective  Survival: pricing to just cover variable costs (pressure competition)  Maximum current profit: price to receive maximum profit  Minimum market share (penetration): price to maximize market share  Captive pricing: sell at low margin, in order to lock customers into higher margin aftermarket products  Maximum market skimming: start prices high and slowly lower them (usually done with high demand products)  Product quality leadership:  Prestige pricing: products are of high quality are priced just high enough so they are not out of reach of the every-day consumer 2. Determine demand  Determining the demand for an item at
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