MGM 301 Lecture Notes - Lecture 7: Price Fixing, Predatory Pricing, Purchase Order
22 Jan 2016
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Four approaches to help find approximate price level: demand oriented- expected customer taste, cost oriented- price is set by looking at production and marketing costs then enough to cover direct expenses, overhead, and profit. Standard markup pricing- entails adding a fixed percentage to the cost of all items in a specific product class. High volume products usually have smaller markups then low volume. Skimming pricing- setting the highest initial price that customers really desiring product are willing to pay. Enough prospective customers are willing to buy the product immediately at high price to make sales profitable. The high initial price will not attract competitors. Lowering price has only minor effect on increasing sales volume and reducing unit cost. Customers interpret the high price as signifying high. Penetration pricing- setting low initial price to appeal to mass quality market. Many segments of market are price sensitive. Low initial price discourages competitors from entering market.
