Pricing

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Department
Management (MGM)
Course
MGMA01H3
Professor
Alison Jing Xu
Semester
Fall

Description
*Pricing  Price: the amount of money charged for a product or service. - It’s the sum of all the values that consumers give up in order to gain benefits of having/using a product/service. - The only element in the marketing mix that produces revenue. - All other elements represent costs.  Factors to consider when setting prices:  Monopoly Pricing - A monopolist faces a downward-sloping demand curve. - Monopolist trades off price and quantity. - Demand,Costs, Price Elasticity of Demand  Monopolist’s optimal price  Price Elasticity of Demand(PED) ( ) % 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑑𝑒𝑚𝑎𝑛𝑑𝑒𝑑 (𝑜𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦) PED= - = - (𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑝𝑟𝑖𝑐𝑒) % 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑝𝑟𝑖𝑐𝑒 (𝑂𝑟𝑖𝑔𝑖𝑛𝑎𝑙 𝑃𝑟𝑖𝑐𝑒)  Elastic Demand Curve - Small Increase in Price - Big decrease in quantity demanded  Inelastic Demand curve - Big increase in price - Small decrease in quantity demanded  Factors that reduce price sensitivity: - Income - Fewer perceived substitutes : concerts, disney theme park, patented technologies - Unique value, strong brand: LV; Bentley - Storability of product  Cost-based pricing: involves setting prices based on the costs for producing, distributing, and selling the product plus a fair rate of return for its effort and risk - It adds a standard markup to the cost of the product  Markup Price = 𝑈𝑛𝑖𝑡 𝐶𝑜𝑠𝑡 (1−𝐷𝑒𝑠𝑖𝑟𝑒𝑑 𝑅𝑎𝑡𝑒 𝑜𝑓 𝑅𝑒𝑡𝑢𝑟𝑛)  Value-based pricing: uses the buyers’ perceptions of value, not the sellers cost, as the key to pricing. - It’s considered before the marketing program is set. - Value-based pricing is customer driven - Cost-based pricing is product driven  Good Value Pricing: offers the right combination of quality and good service to fair price. - Ex. McDonald’s value menus; Armani Exchange - Everyday Low Pricing(EDLP): involves charging a constant everyday low price with few or no temporary price discount. - High-Low Pricing: involves charging higher prices on an everyday basis but running frequent promotions to lower prices temporarily on selected items. EX. Sears v
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