RSM100Y1 Chapter 17: CHAPTER 17-Pricing and Distributing Goods and Services
CHAPTER
17:
PRICING
AND
DISTRIBUTING GOODS
AND SERVICES
- looking at the ³SULFH´DQG ³SODFH´RI
marketing
mix
-
Influences consumer
demand and company profitability
www.notesolution.com
Pricing
Objectives
and
Tools
- pricing -
managers
decide what the company will receive in
exchange
for its
product
Pricing to Meet
Business Objectives
- pricing is done in order to
maximize
profits and other pricing objectives
= other goals that producers hope to attain in pricing their products
- some firms want to
dominate
the market or
secure
high market share
-
Pricing decisions
are
influenced
by the need to
survive
in the
marketplace, social
and
ethical
concerns and
corporate image
Profit
Maximizing Objectives
- price low,
sell
more, but firms may miss the opportunity to make additional
profit
- price too high, make more profit, but
sell
fewer units which
results
in
excess inventory
and then the
company needs to reduce production operations
- In
calculating
profits,
managers
compare
receipts against
costs for
materials
and
labour
to create the
product.
They consider
the
capital resources, including
plant and equipment, that the company uses in
order to make that profit
possible.
Also
include
the costs of marketing
PRICING FOR E-BUSINESS OBJECTIVES: sales
on the
internet include different
kinds of costs and different
forms of
consumer
awareness
- prices on the
internet
are often lower
because
of the interQ¶HWV
marketing
capabilities
-
Internet
= direct link between
manufacturer
and buyer, so the buyer
avoids
costs of the
wholesaler
and
retailer
-
Another
factor in low
internet
pricing is the
efficiency
and
ease
of
internet
shopping
Market
Share objectives
-
business
needs to earn a profit to survive.
- some
companies willing
to price low for new products just to get people to buy them aka they use pricing
to
establish
a market share
- Market
share
= a company¶s percentage of total market
sales
for a specific product
Other
Pricing Objectives
- if in an economic
recession,
the
objective
of a company might not be to maximize
profits, it could be to
minimize
losses
Price Setting
Tools
- 2 basic tools that are combined to guide the company to their
objectives
and to
analyze
the
potential
impact of a product before pricing the good:
1) Cost
Oriented Pricing: considers
a firm¶s
desire
to make a profit and
considers
the need to cover
production costs.
-
manager
must account for the product and other costs and set a
figure
for profit.
Together,
these figures
constitute a markup. Markup is
usually
stated in terms of percentage of a
selling
price
Markup % = markup /
sales
price
- the
resulting
percentage
(x)
is that out of
every dollar (x)
will be gross profit. From the gross profit, the firm
needs to cover
all excess
costs
- Market based pricing is pricing at a flat rate based on how much
consumers
are
willing
to pay
(ie
movie
theatre industry)
Break
Even Analysis:
Cost
Volume
Profit Relationships
- firm
covers
its
variable
costs - the costs that change with the number of goods/services produced or sold
- and will make
money
to pay its fixed costs - costs that are
unaffected
by the number of goods and
services
produced/sold
- To
determine
how many units the company needs to
sell
to cover its fixed costs and make a profit, use a
break
even
analysis
- Break
even
point - the number of units that need to be sold at price
(X)
so that a company
covers all
of is
variable
and fixed costs
Break
even
point = total fixed costs / price -
variable
costs
- if a firm
sells
the exact amount at the break
even
point, there will be 0
losses
and profits
www.notesolution.com
Pricing
Strategies
and Tactics - pricing
strategy
looks at pricing as a
planning activity
that affect the
marketing mix.
Pricing
tactics are ways in which
managers implement
a firm¶s pricing strategies
Pricing
Strategies
-
differences
in prcing for
similar
products
reflects differences
in product costs and more
importantly, different
brand
images
that attract
different
types of cstomers
- pricing has a direct and
visible
impact on revenues, so it¶s
reallly
importnat to
overall marketing
plans and it
is
critical
to consumers
Pricing
Existing
Products - look at the
prevailing
market price and a firm can set the price at
above,
below or
at the
prevailing
price.
- above - firms try to
convince
customers that
higher
price =
higher
quality
- Below - firm
offers
acceptable
quality while keeping
costs below those of
higher
priced options
-
Price leadership
- dominant firm in the
industry establishes
the product prices and other firms follow along;
common in
manufacturing
industry/raw
materials because
the products are
similar
in terms of
quality.
In this
sense, companies
compete not in terms of price, but in terms of
advertising, personal selling
and service.
-
Price fixing
=
illegal
process of produces
agreeing
amongst
themselves
what prices will be charged
Pricing new products- introduce new product,
consider
coming in with a
very
high price or a
very
low price
- price
skimming strategy
is setting an
initially
high price to earn
maximum
profits per unit sold.
The
revenue
is needed to cover
development
and introductory costs .
Marketers
need to
convince consumers
that the
product is truly
different
from the
existing
products in the market
-
Penetration
pricing -
strategy
to set a price
very
low to
sell
the most units
possible
in order to create
consumer
intrest,
loyalty
and
encourage trial
purchases
Fixed vs
Dynamic Pricing
for E-
Business
-dynamic pricing -
sellers alter
prices privately
- fixed pricing = most common
Pricing tactics -
following
are 3 tactics
marketers
need to decide between
PRICE LINING: offering all
items in
certain categories
at
limited
number of
predetermined
prices
- price points are set at which a
particular
product will be sold
PSYCHOLOGICAL PRICING: consumers
aren¶t
totally rational
when making
buying decisions
so
sellers
set
practices to tak
advantage
of FRQVXPHUV¶
nonlogical
reactions
- odd
even
pricing = form of
psychological
pricing in which prices are not stated in
dollars
amount ie
charging
$9.95
instead
of $10.00
DISCOUNTING: sellers
offer a price reduction to
persuade
customers to buy the product
- stores may offer cast discounts
(pay
cash, pay
less
than credit
cards)
or
seasonal
discounts - offer
discounts during low
seasons
to
stimulate
sales
-
Trade
discounts - discounts
given
only to those
involved
in a product¶s distribution
-
Quantity
discounts - buy more, pay less
International Pricing
- conduct research to find out what
communities
can afford
certain
products and then
develop
the products that these people can buy
- need to
analyze
income and
spending
and
shipping
costs,
tariffs
and
legal
agreements
The
Distribution
Mix - combination of
distribution channels (place)
a firm
selects
to get a
finished
product to
customers
-
companies
need a good product mix
(the
group of products that a company has for
sale
- should address
some sort of need)
Intermediaries and
Distribution Channels
-
intermediaries
= the
middlemen;
the people and firms who
help
distribute
a producer¶s goods,
anyone
other than the producer,
including wholesalers
and retailers
www.notesolution.com
Document Summary
Chapter 17: pricing and distributing goods and services. Looking at the 57. 0,3/ 5,. 041 marketing mix. Influences consumer demand and company profitability www. notesolution. com. Pricing objectives and tools - pricing - managers decide what the company will receive in exchange for its product. Pricing to meet business objectives - pricing is done in order to maximize profits and other pricing objectives. = other goals that producers hope to attain in pricing their products. Some firms want to dominate the market or secure high market share. Pricing decisions are influenced by the need to survive in the marketplace, social and ethical concerns and corporate image. Profit maximizing objectives - price low, sell more, but firms may miss the opportunity to make additional profit. Price too high, make more profit, but sell fewer units which results in excess inventory and then the company needs to reduce production operations. In calculating profits, managers compare receipts against costs for materials and labour to create the product.
