BUSM 2001 Lecture Notes - Lecture 8: Yield Management, Price Discrimination, Predatory Pricing

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A reference price is the price customers use to compare against the actual selling price of a product. Internal reference price is the price info saved in the customers memory of what a product should cost. Acquisition utility is the satisfying ability of a product. Transaction utility is when a customer uses this internal reference price to make an informed decision to determine if they are getting a good deal on a product. There are four approaches for setting an appropriate price: demand-oriented, cost-oriented, profit-oriented, and competition-oriented. Price skimming is when a company intentionally sets their prices to the maximum to see what the most loyal customers will pay for the product. Then, the company will reduce the price in order to market to consumers who were not willing to pay the higher prices. Price penetration is the opposite of price skimming. Price penetration is when a company sets a low price to gain a wide target market.

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