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Management (MGT)
Chris Bovaird

Pricing and Distributing Goods and Services Pricing Objectives and Tools Pricing to Meet business Objectives (profit maximizing; market share, survival) pricing: deciding what the company will receive in exchange for its product pricing objectives: goals that producers hope to attain in pricing products for sale profit maximizing objectives: company must set price at a level where it makes maximum profit for each item, and sells the maximum number of items (ex. Coca-Cola raising prices when temperature rises, Senators raising prices when playing division rivals) pricing for Ebusiness objectives: lower prices and costs; more direct link between producer and consumer (no wholesaler); easy comparison shopping; joining forces for greater purchasing power is easier for businesses and consumers market share: a companys percentage of the total market sales for a specific product market share objectives: companies use prices to establish market share; lower prices likely means more people will be willing to try new product o dominating a market means consumers are more likely to buy a certain product because they are familiar with the label o sometimes the main objective of a company is loss containment and survival (rather than profit maximizing or market share); ex. John Deere priced agricultural equipment low enough to ensure survival Price Setting Tools cost oriented pricing: must take costs (insurance, advertising, products) into consideration when pricing items to make profit (doesnt apply to movies) o markup percentage = markup sales price using cost oriented pricing, variable costs are covered, some of fixed costs are covered, but to plan profit, a break-even analysis is necessary o variable costs: those costs that change with the number of goods or services products o fixed costs: those costs unaffected by the number of goods or services produced or sold o break-even analysis: as assessment of how many units must be sold at a given price before the company begins to make a profit o break-even point: the number of units that must be sold at a given price before the company covers all of its variable and fixed costs break even point = total fixed costs (price-variable costs) Pricing Strategies and Tactics Pricings Strategies (new products, old products) pricing existing products: 3 options- price above, below or near market price o pricing above makes product seem to have superior quality o pricing below can be successful if quality is acceptable price leadership: the dominant firm in the industry establishes product prices and other companies follow suit (ex. in steel, gasoline, processed food) price fixing: the illegal process of producers agreeing among themselves what prices will be charged pricing new products 2 options- price skimming, penetration-pricing o price skimming strategy: the decision to price a new product as high as possible to earn the maximum profit on each unit (revenue often used to cover initial costs, ex. HDTVs) o penetration pricing strategy: the decision to price a new product very low to sell the most units possible and to build customer loyalty fixed versus dynamic pricing for Ebusiness: o dynamic pricing: works because millions of people are easily notified of changes in prices (sales can also be altered privately); ex. o fixed pricing: most common option for cyber shoppers (ex. but dynamic pricing is gaining popularity Pricing Tactics (price lining, psychological pricing, discounting tactics) price lining: the practice of offering all items in certain categories at a limited number of predetermined price points (ex. all mens suits for $175, $250 or $400)
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