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MKT 100 (503)
Chapter

Module 7 Notes

5 Pages
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Department
Marketing
Course Code
MKT 100
Professor
Paul Finlayson

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Module 7: Pricing
Section 1: Understanding Price
Prices determine how we allocate and use resource on the earth
Efficient, healthy markets, price goes up when demand increases more than supply
increases, or when supply decreases more than demand decreases
Price goes down when demand decreases more than supply decreases, or when
supply increases more than supply increases
As prosperity around the world increases, the demand for all service and products
increases
Prices usually rise more than they drop
Section 2: Price Sensitivity
For established products, decision to raise or lower prices is based on the effect of a
price change on gross contribution
Gross contribution: quantity sold times contribution and contribution is price
minus variable cost per unit
Demand curve: specifies the quantity of goods sold at various price levels and the
sensitivity of demand to fluctuations of price
Elasticity: Market or market segments sensitivity to price
High negative price elasticity price increases , demand decreases a lot
Consumers are more price sensitive when
oPrice is a large part of income (major purchase, car)
oTargeted buyers have little money to spend on the stuff
oRecession
oWhole product category becomes much more expensive than it was (ex gas)
oLittle product differentiation and quality difference between competitive
products , thus the product has come a standardized commodity
www.notesolution.com
oProduct model is economy and not top of the line
oPrice competition with products
oEasy for buyers to learn about and switch to substitutes
You should always set your price just below a price kink where demand drops off a
lot
Section 3: Setting the Price of Quality
To price a product using quality-added analysis, you present the new alternative
with its new quality added feature along with the product currently used and then
ask the consumer how much more they would be prepared to pay for the product
with the new feature
Section 4: Price Skimming and Price Penetration
Price skimming: pricing high and only selling to a few buyers
Price penetration: pricing low and selling to more buyers
Problem with price skimming, attracts competition and must have patents or
constantly innovate to stay on top
Learning curve effect: giving up on price skimming, and as your costs are lowered
with production of scale and experience
Extended warranties bring in a lot of money (Best Buy, appliances)
If demand is sensitive to price and/or you are entering a market for the first time
with an unknown brand, you set a price low to try and penetrate the market
As market learns you have quality product, creates buzz, take two diff approaches
oKeep your price low, increase sales, increasing your production scale and
experience which lowers costs
oKeep raising quality, raise prices with each new model
www.notesolution.com

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Description
Module 7: Pricing Section 1: Understanding Price Prices determine how we allocate and use resource on the earth Efficient, healthy markets, price goes up when demand increases more than supply increases, or when supply decreases more than demand decreases Price goes down when demand decreases more than supply decreases, or when supply increases more than supply increases As prosperity around the world increases, the demand for all service and products increases Prices usually rise more than they drop Section 2: Price Sensitivity For established products, decision to raise or lower prices is based on the effect of a price change on gross contribution Gross contribution: quantity sold times contribution and contribution is price minus variable cost per unit Demand curve: specifies the quantity of goods sold at various price levels and the sensitivity of demand to fluctuations of price Elasticity: Market or market segments sensitivity to price High negative price elasticity price increases , demand decreases a lot Consumers are more price sensitive when o Price is a large part of income (major purchase, car) o Targeted buyers have little money to spend on the stuff o Recession o Whole product category becomes much more expensive than it was (ex gas) o Little product differentiation and quality difference between competitive products , thus the product has come a standardized commodity www.notesolution.com
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