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Chapter 11

MKT 100 Chapter Notes - Chapter 11: Monopolistic Competition, Pricing Strategies, Oligopoly

Course Code
MKT 100
Fathima Saleem

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Chapter 11: Pricing Concepts and Strategies: Establishing
Price: the sacrice that a consumer is willing to make (monetary- travel costs, taxes,
shipping costs or nonmonetary- me) to acquire a specic product/service
Priced too high communicates low value, priced too low communicates low quality
Price is the only element of the markeng mix that generates revenue
Price is an informaon cue, that is, consumers use the price of a product/service to
judge its quality, parcularly when they are less knowledgeable about the
The 5 Cs of Pricing
Company, objecves, customers, costs, compeon, and channel members
Company Objecves
Prot Orientaon: a company objecve that can be implemented by focusing on target
prot pricing, maximizing prots, or target return pricing
Sales Orientaon: a company objecve based on the belief that increasing sales will
help the rm more than will increasing prots
Competor Orientaon: a company objecve based on the premise that the rm should
measure itself primarily against its compeon
oCompeve parity: rms set prices that are similar to those of their major
Customer Orientaon: pricing orientaon that explicitly invokes the concept of
customer value and se%ng prices to match consumer expectaons
Demand curve: shows how many units of a product/service consumers will demand
during a specic period at di&erent prices
Consumers are generally less sensive to price increases for necessary items, such as
milk, because they have to purchase these items even if the price increases
Elasc: refers to a market for a product/service that is price sensive; that is, small
changes in price will result in large changes in the quanty demanded
Inelasc: refers to a market for a product/service that is price insensive; that is, small
changes in price will not result in large changes in the quanty demanded
Factors In$uencing Price Elascity of Demand
oIncome E%ect: the change in the quanty of a product demanded by consumers
because of a change in their income
oSubstuon E%ect: refers to the consumers’ ability to substute other products
for the focal brand, thus increasing the price elascity of demand for the focal
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oCross-Price Elascity: the percentage change in demand for Product A that
occurs in response to a percentage change in price of Product B
Variable costs: those costs, primarily labour and materials, that vary with producon
Fixed costs: those costs that remain the same level, regardless of changes in producon
Total cost: the sum of the variable and xed costs
Break-Even Point: the point at which the number of units sold generates just enough
revenue to equal the total costs; at this point, prots are zero
Monopoly, oligopolisc, monopolisc, and pure
Monopoly: occurs when only one rm provides the product/service in a parcular
industry= less price compeon (ex: Hydro One)
Oligopolisc compeon: occurs when only a few rms dominate a market (ex: banking
industry, gasoline industry, and commercial airline travel)
oPrice wars: when two or more rms compete by lowering their prices
Monopolisc compeon: occurs when many rms are compeng for customers in a
given market but their products are di&erenated (ex: Rolex for presge, Swatch for
style, Timex for durability)
Pure compeon: occurs when di&erent rms sell commodity products that consumers
perceive as substutable; price usually is set according to the laws of supply and
Channel Members
Manufacturers, wholesalers, and retailers have di&erent perspecves of pricing
Other In$uences On Pricing
The Internet: The ability of consumers to acquire products, services, and informaon
online has increased their price sensivity and reduces the costs associated with nding
lower-price alternaves
Economic Factors: increase in consumers’ income and status consciousness; some
consumers appear willing to spend money for products that convey status in some way
Pricing Methods and Strategies
Cost-based pricing method: determines the nal price to charge by starng with the
cost, without recognizing the role that consumers or competors’ prices play in the
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