HLTHAGE 4Z06 Chapter Notes - Chapter 7: Direct Market, Mail Order, Drop Shipping

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Published on 19 Apr 2013
McMaster University
Health, Aging and Society
Chapter 7
Pricing: deciding how much to sell products for
Pricing objectives: goals that producers strive to reach in pricing
oTo sell the number of unites that generates the highest total profits
oE-Business: comparison shopping and direct link between buyers and
sellers influence pricing
Market Share objectives: set prices low in order to increase customer base
oMarket share: percent of total sales in a market made by the company.
Loss containment/survival strategy (e.g. cutting prices on obsolete products
to recover an investment).
Price-Setting Tools
Cost-orienting pricing:
oMarkup is the difference between manufacturing price and selling price
that takes into account additional costs.
oMarkup percentage = Markup/Sales Price (as a percent of revenue)
Break-even analysis
oConsider variable costs (costs that change with number of units sold)
and fixed costs (unaffected by number of units sold) to perform a
break-even analysis (determining the number of unites that are
required to sell in order to cover costs).
oBreak-even point (in units) = Total fixed costs/ (Price-Variable cost)
[know how to do this for the exam]
Pricing Strategies
Price leadership: dominant firm in the industry that establishes prices and
other companies follow
Price-skimming strategy: to price as high as possible to maximize profit per
unit (only works if the product is market as truly unique).
Penetration-pricing strategy: price a new product very low to move units and
build customer loyalty.
Setting price points for items in categories, limiting the number of price
points adds simplicity
Psychological pricing: setting prices to take advantage of consumer
perceptions of certain types of prices
oOdd-even psychological pricing (e.g. $99.99, not even a dollar amount,
perceived lower than $100)
Discounting: price reductions on set prices to persuade consumer to buy
oCash discounts, seasonal discounts, trade discounts (in return for being
a distributor), quantity discount (in return for buying in bulk)
International pricing: pricing a product lower in a foreign market than in a
home market is called ‘dumping’ (it is illegal). It involves taking a loss to drive
competitors out of business.
The distribution mix is just as important as the marketing mix discussed
Intermediaries/middlemen: help distribute a producer’s goods
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