Chapter 7. The 4 P’s of Price

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12 Apr 2012
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Chapter 7. The 4 P’s of Price
PRICING OBJECTIVES AND TOOLS
Pricing: deciding what the company will receive in exchange for its product
Pricing to Meet Business Objectives
Pricing Objectives: goals that producers hope to attain in pricing products for sale
Profit-Maximizing Objectives
oPrice can’t be too high or too low
oPricing for Ebusiness Objectives
Must consider costs , on the internet it is more easy and efficient to buy
things and thus producers can charge lower costs
Market Share Objectives
oMarket share : a company’s percentage of the total market sales for a specific
product
Other Pricing Objectives
oDuring difficult economic times , loss containment and survival may become a
company’s main objectives
Price-Setting Tools
Cost-Oriented Pricing
oConsiders the firms desire to make a profit and takes into account the need to
cover production costs
oMark-up = mark-up/ales price
Break-Even Analysis : Cost-Volume-Profit Relationship
oVariable costs : those costs that change with the number of goods or services
produced or sold
oFixed costs : those costs unaffected by the number of goods or services
produced or sold
oBreak-even analysis : an assessment of how many units must be sold at a given
price before the company begins to make a profit
oBreak-even point : the number of units that must be sold at a given price before
the company covers all of its variable and fixed costs
oProfit = total revenue – (total fixed costs + total variable costs )
(14,286 CD’s x $15) – ($100,00 fixed costs + [ 14,286 CD’s x $8 variable
cost)
PRICING STRATEGIES AND TACTICS
Pricing Strategies
Pricing Existing Products
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