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MGTA02H3 (143)

Chapter 7.pdf

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Management (MGT)
Chris Bovaird

"Marketing " Chap. 7 Pricing & Distribution Previously : Marketing Overview: nothing sells itself Target markets: who will buy product? Marketing concept: focus on customer needs The 4 Ps: Product, price, promotion and place Market Secondary vs. Primary Research Quantitative vs. Qualitative Observation vs. Communication Product 3 types of consumer product Product Life Cycle introduction, grwoth,maturity, decline This Week: The 2 nd“P” - Price How Does the Firm Determine its Selling Price? Cost based pricing ("Bottom-Up") Markup Pricing Strategies: Market Skimming Penetration Break-Even Analysis 1 Pricing That part of the marketing mix concerned with choosing the appropriate price for a product to meet the firm’s profit objectives and buyers’ purchasing objectives Note emphasis on “profit objectives” Price The amount of money that a seller is willing to accept in exchange for a product, at a given time under given circumstances. Determinants of Price Maximise Profits Maximise Market Share 2 How Does Firm Determine Selling Price? Cost based pricing ("Bottom-Up") Start with your cost of goods sold. Overhead costs = Operating costs = SG&A Interest costs What kind of profit do you want to make? (Don't forget taxes). What will you need to charge? Will the market bear this price? "Markup" Markup = Markup = 5 Cost + Markup 10 + 5 Markup % = Markup = 5 = 33% Sales Price 15 3 Two Important Pricing Strategies - Skimming vs. Penetration Skimming Take all the cream, charge as much as you can. Advantage: maximises short term profits Disadvantage: may not last Example: Mercedes Benz, Penetration Take a little from each. Advantage: builds market share, customer loyalty Disadvantage: forgo chance of short-term profits Example: Honda Civic 4 Break-Even Analysis Fixed Cost = $100,000 Selling Price = $15 Cost = $10 Make $5 "contribution" on every one Break even Point in units = Total fixed costs ------------------------ Price - variable costs X = $100,000 ------------------ $15 - $10 10,000 units generates 150,000 revenues and 100,000 + 100,000 costs 20,000 units generates 300,000 revenues and 100,000 + 200,000 costs 5 Other Ways That Products Are Priced Commodity Pricing Some p
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