All you need to know for midterm: question & answer summaries for chapter 1 to 5

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University of Toronto Scarborough
Management (MGM)
Tarun Dewan

Chapter 1 1 Define the 5 elements of pricing strategy and illustrate how they work in concert to maximize profitability Please provide examples to illustrate your answer 5 elements of pricing strategy areVALUE CREATIONValue creation includes creating economic value and offering design that convince people to pay matching prices to that value Creating value allow companies to create offerings that are valuable to consumers which in turn may induce sales and increase profit for the company For instance an airline company can create value by thinking about what market segment it wants to serve with a new service determining the benefits those potential customers seek and establishing profitable prices those customers can be convinced to pay PRICE STURCTUREPrice structure means setting price metrics fences and controls This is the next step after creating value for different consumer segments in pricing strategy The most simple price structure is price per unit which is adequate for commodity products and services Setting more complicated price structures can reflect difference in the potential contribution obtained from different segments by capturing the best possible price from each segment making the sale at the lowest possible cost For example an airline seat is valued at different levels for different customers A business traveler who needs to meet a client at a particular place and time will value the service more than a pleasure traveler To attract more pricesensitive pleasure travelers without discounting to business travelers they create segmented price structures so that most passengers pay a price aligned with the value they place on having seat With different price options the airline can maximize revenue from each flight by limiting the seats available at the discounted noncancellable prices to a number that they project could not be sold at higher pricesPRICE AND VALUE COMMUNICATION means effectively communicating how the prices charged are aligned with the value of the benefits provided Creating values and translating that value into a valuebased price structure may not necessarily drive sales because customers dont recognize the value they are obtaining by purchasing your product Thus value communication allows customers to understand the value of your product and gives that extra push to drive sales and commitment For example for business travelers who highly value refundable changeable tickets with high priority rebooking the sales representative of an airline can inform them how much they can save buy purchasing at a price higher than the basic price but actually lower than the total cost if he bought at the basic price and had to change ticket or rebook due to disruption Ultimately the marketers goal is to get the right message to the right person at the right point in the buying processPRICING POLICYIt refers to the set of rules that can help a company develop
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