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MGTA04 Chapter 7.docx

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Management (MGT)
H Laurence

Pricing Objectives and Tools Pricing to Meet Business Objectives  Pricing: managers deciding what the company will receive in exchange for its products  Companies price products to maximize profit and to meet pricing objectives=Goals that producers hope to attain in pricing products for sale i.e. high market share, etc  Pricing to maximize profit is difficult take into consideration: cost of materials, labor, capital resources, costs of marketing, etc  Pricing for e-business objectives: lower prices due to ability to see competition very easily, less costs, web access to wholesalers, etc  Market Share Objectives: establish market share by setting low prices in the beginning to get buyers to start trying products Market share=company’s percentage of the total market sales for a specific product sometimes market share may outweigh products in terms of importance  Other Pricing Objectives: neither maximizing profit/market share is important i.e. during tough economic times or other events Price-Setting Tools  Pricing as a planned activity that affects the market mix=pricing strategy  Cost oriented pricing considers the firms desire to make a profit and takes into the account the need to cover production costs  Markup %=markup=sales price  Break even analysis: cost-volume-profit relationships  Breakeven point (units)=Total fixed costs/(price-variable costs)  BEP= number of units that must be sold at a given price before the company covers all of its variable and fixed costs  Profit=Total revenue – (total fixed costs + total variable costs) Pricing Strategies and Tactics Pricing Strategies  Pricing tools provide a valuable guide for managers to set prices on specific goods, but they do not provide general direction for managers trying to decide on a pricing philosophy for their company  Pricing strategy: pricing as a planning activity that affects the marketing mix  Pricing tactics: ways in which managers implement a firms pricing strategies  Firm can set prices for existing products above, below or at prevailing prices  Higher price means higher qua
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