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Department
Management (MGT)
Course Code
MGTA02H3
Professor
Chris Bovaird

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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 company’s 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
odominating a market means consumers are more likely to buy a certain product because they are
familiar with the label
osometimes 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 (doesn’t apply to movies)
omarkup 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
ovariable costs: those costs that change with the number of goods or services products
ofixed costs: those costs unaffected by the number of goods or services produced or sold
obreak-even analysis: as assessment of how many units must be sold at a given price before the
company begins to make a profit
obreak-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
opricing above makes product seem to have superior quality
opricing 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
oprice 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)
openetration 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:
odynamic pricing: works because millions of people are easily notified of changes in prices (sales
can also be altered privately); ex. ebay.com
ofixed pricing: most common option for cyber shoppers (ex. Amazon.com) 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 men’s suits for $175, $250 or $400)
www.notesolution.com
psychological pricing: the practice of setting prices to take advantage of the non-logical reactions of consumers
to certain types of prices
oodd-even psychological pricing: a form of psychological pricing in which prices are not stated in
even dollar amounts (consumers see $9.99 as significantly less than $10)
discounting: used to stimulate sales
odiscount: any price reduction offered by the seller to persuade customers to purchase a product
ocash discount: a form of discount in which customers paying cash, rather than buying on credit
pay lower prices
oseasonal discount: a form of discount in which lower prices are offered to customers making a
purchase at a time of year when sales are traditionally slow
otrade discounts: a discount given to firms involved in a product’s distribution
oquantity discounts: a form of discount in which customers buying large amounts of a product pay
lower prices
International Pricing
P&G realized that high R&D costs were making products too expensive for foreign consumers so R&D became
focused on finding the types of products foreign consumers could afford and then supplying them
other factors: exchange rates, incomes, spending patterns,
The Distribution Mix
distribution mix: the combination of distribution channels a firm selects to get a product to end-users
Intermediaries
intermediary: any individual or firm other than the producer who participates in a product’s distribution (once
called middlemen; generally called wholesalers or retailers
owholesalers: intermediaries who sell products to other businesses, which in turn resell them to
end-users
oretailers: intermediaries who sell products to end-users
distribution of consumer products: 8 channels
odistribution channel: the path a product follows from the producer to the end-user
ochannel 1: direct distribution of consumer products
direct channel: a distribution channel in which the product travels from the producer to
the consumer without passing through any intermediary (ex. Avon, Tupperware,
Gateway, airline rsvn.)
ochannel 2: retail distribution of consumer products:
producers use retailers to distribute products (ex. Goodyear has own retail outlets, Levi
has own but produces for Gap as well)
ochannel 3: wholesale distribution of consumer products
once the most widely used non-direct method of distribution; requires large amount of
floor space for display and storage,
ochannel 4: distribution through sales agents or brokers
sales agent (or broker): an independent business person who represents a business and
receives a commission in return, but never takes legal possession of the product (ex.
Lafferty and Co. Food Brokers Inc. represents Pillsbury, Sunkist and more in U.S.; travel
agents, etc)
the pros and cons of non-direct distribution
opros: profit added at each level of distribution;
ocons: higher prices (markups); markups 10-40% for manufacturers, 2-25% for wholesalers, 5-100%
for retailers
added value: intermediaries create added value by saving consumers time and money
o channel 5: distribution by agents to consumers and businesses
agent is sole intermediary, distributes to businesses and consumers (ex. Uniglobe)
distribution of business products: industrial channels are important because businesses buy from other
businesses
oindustrial (business) distribution: the network of channel members involved in the flow of
manufactured goods to industrial customers
ochannel 6: direct distribution of business products
most goods are sold directly by manufacturer to buyer
sales offices: offices maintained by sellers of industrial goods to provide points of contact with their customers
www.notesolution.com

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Description
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. ebay.com o fixed pricing: most common option for cyber shoppers (ex. Amazon.com) 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) www.notesolution.com
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