MKT 337 Lecture Notes - Lecture 13: List Price, Value-Based Pricing, Price Equation

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4 Jan 2017
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Chapter 13: Building the Price Foundation
NATURE AND IMPORTANCE OF PRICE
What is Price?
Price: the money or other considerations exchanged for the ownership or use of a product or
service.
- Buyers are willing to spend extra fees than a higher listing price, so sellers use add-
charges as a way of having the consumer pay more without raising the listing price.
Barter: the practice of exchanging products and services for other products and services rather
than for money.
Price Equation: Final Price = List price Incentives and allowances + Extra Fees
Price and Global Marketplaces
To generate profit in today’s global marketplace, international firms look around the world to
find both new market to increase revenues and suppliers whose efficiencies and lower hourly
wages can reduce the prices the buying firms must pay
Price as an indicator of Value
Price is often used to indicate value when it is compared with the perceived benefits such as
quality, durability and so on.
Value: Perceived benefit/Price
Value Pricing: practice of simultaneously increasing product and service benefits while
maintaining or decreasing price.
Price in the Marketing Mix
Profit = Total Revenue- Total Cost
= (Unit Price x Quantity Sold) (Fixed Cost + Variable Cost)
Six major steps in the process organizations go through in setting prices
1. Identify pricing objectives and constraints
2. Estimate demand and revenue
3. Determine cost, volume and profit relationships
4. Select and appropriate price level
5. Sett list or quoted price
6. Make special adjustments to list or quoted price
STEP ONE: IDENTIFYING PRICING OBJECTIVES AND CONSTRAINTS
Identifying Pricing Objectives
Pricing Objectives: specifying the role of price in an organizations marketing and strategic plan.
Profit: Three different objectives relate to a firms profit measured in terms of return on
investment or return on assets.
- Managing for long-run profit- give up immediate profit by developing quality
products to penetrate competitive markets over the long run
- Maximizing current profit:
- Target Return: when a firm sets a profit goal, usually determined by board of
directors
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