Chapter 9.docx

5 Pages
Unlock Document

Simon Fraser University
Business Administration
BUS 343
Zaheer Jiwani

Chapter 9 “Yes, but what does it cost?”  What is price? Psychological cost: The stress, anxiety, or mental difficulty of buying and using a product. Operating costs: Costs involved in using a product. Switching costs: Costs involved in moving from one brand to another. Opportunity cost: The value of something that is given up to obtain something else.  Step1: Develop pricing objectives  Profit objectives Profit objectives: Pricing products with a focus on a target level of profit growth or a desired net profit margin. SMART objectives: Objectives that are specific, measurable, attainable, relevant, and time-bounded.  Sales or marketing share objectives Sales or market share objective: Pricing products to maximize sales or to attain a desired level of sales or market share.  Image enhancement objectives Prestige products: Products that have a high price and that appeal to status-conscious consumers. Costs, demand, revenue, and the pricing environment  Step2: Estimate demand and value Demand curve: A plot of the quantity of a product that customers will buy in a market during a period of time at various prices if all other factors remain the same.  Price elasticity of demand Price elasticity of demand: The percentage change in unit sales that results from a percentage change in price. Elastic demand: Demand in which changes in price have large effects on the amount demanded. Cross-elasticity of demand: When changes in the price of one product affect the demand for another item.  Step3: determine costs  Variable and fixed costs Variable costs: The costs of production (raw and processed materials, parts, and labour) that are tied to and vary, depending on the number of units produced. Fixed costs: Costs of production that do not change with the number of units produced. Average fixed cost: The fixed cost per unit produced. Total costs: The total of the fixed costs and the variable costs for a set number of units produced.  Break-even analysis Break-even analysis: A method for determining the number of units that a firm must produce and sell at a given price to cover all its costs. Break-even point: The point at which the total revenue and total costs are equal and beyond which the company makes a profit; below that point, the firm will suffer a loss. Contribution per unit: The difference between the price the firm charges for a product and the variable costs.  Marginal analysis Marginal analysis: A method that uses cost and demand to identify the price that will maximize profits. Marginal cost: The increase in total cost that results from producing one additional unit of a product. Marginal revenue: The increase in total income or revenue that results from selling one additional unit of a product.  Markups and margins: pricing through the channel Markup: An amount added to the cost of a product to create the price at which a channel member will sell the product. Gross margin: The markup amount added to the cost of a product to cover the fixed costs of the retailer or wholesaler and leave an amount for a profit. Retailer margin: The margin added to the cost of a product by a retailer. Wholesaler margin: The amount added to the cost of a product by a wholesaler. List price or manufacturer’s suggested retail price (MSPR): The price the end customer is expected to pay as determined by the manufacturer; also referred to as the suggested retail price.  Step4: examine the pricing environment  Consumer behavior & trend Internal reference price: A set price or a price range in consumers’ minds that they refer to in evaluating a product’s price.  The international environment Price subsidies: Government payments made to protect domestic businesses or to reimburse them when they must price at or below cost to make a sale. The subsidy can be a cash payment or tax relief. Pricing the product: establishing strategies  Step5: choose a pricing strategy  Strategies for profit or return objectives Cost-plus pricing: A method of setting prices in which the seller totals all the unit costs for the product and then adds the desired profit per unit. Price-floor pricing: A method for calculating price in which, to maintain full plant operating capacity, a portion of a firm’s output may be sold at a price that covers only marginal costs of production.  Strategies based on demand Demand-based pricing: A price-setting method based on estimates of demand at different prices. Target costing: A process in which firms identify the quality and functionality needed to satisfy customers and what price whey are willing to pay before the product is designed; the product is manufactured only if the firm can control costs to meet the required price. Yield-management pricing: A practice of charging different prices to different customers to manage capacity while maximizing revenues. Variable pricing: A flexible pricing strategy that reflects what individual customers are willing to pay. Skimming price: Charging a very high, premium price of a
More Less

Related notes for BUS 343

Log In


Don't have an account?

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.