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Business Administration
BUS 343
Zaheer Jiwani

Price the product (Chapter 9) Price is the value that customers give up, or exchange, to obtain a desired product. The importance of pricing decisions  Price is the most important consideration for most consumers when making a purchase or deciding where shop  Revenue: the price charge to customers * the number of units sold ( R = P*Q)  Profit = revenue—expenses Process of price planning  Step 1: Set pricing objectives  Profit: profit maximization  SMART: Specific, Measurable, Attainable, Relevant, and Time- Bounded  Profit = Revenue ― Expenses  Total Revenue = Price X Quantity Sold  Increased sales volume is more important in the long run  Can maximize sales through pricing and non-price factors such as service and quality  Sales market share: sales maximization  Controlling a specified minimum share of the market for a firm’s good or service  Short-term objective to maximize sales  Ignore profits, competition and the marketing environment  Competitive effect  Set prices to match industry leaders  Shifts marketing mix to focus on non-price factors ( airlines serveice)  Customer satisfaction .  Promise to stand behind customers and support them always.  Image enhancement  Pricing is particularly important with prestige products ( or luxury products) that have a high price and appeal to statue-conscious consumers.  Step 2: Estimate demand  Elasticity of demand: Consumers’ responsiveness or sensitivity to changes in price.  price elasticity of demand= Δ% in quantity demanded/ Δ% in price  cross-elasticity of demand: changes in the price of one product affect the demand for another item ( substitutes/ complements goods)  elastic demand (luxury)  inelastic demand (necessity )  unitary elasticity  Step 3: Determine costs  Variable/ Fixed/ Total Costs  Breakeven analysis: Pricing technique used to determine the number of products that must be sold at a specified price in order to generate enough revenue to cover total cost.  (in units break-even point)  (in dollars)  ( in units with profit)  Marginal cost/ revenue  Profit is maximized at the point at which marginal cost is equal to marginal revenue  Step 4: Examine the pricing environment  Other 3P’s  Economy  Competition  International environments  Consumer Behaviors:  Internal reference price  Assimilation vs. contrast effect  Price-quality inference  Normal vs. Prestige Products  Substitutes vs. Complements  Internet  Legal & Ethical considerations:  Deceptive pricing practices  Predatory pricing vs. loss-leader pricing  Price dis
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