BUS 343 Chapter Notes - Chapter 10: Monopolistic Competition, Marketing Mix, Oligopoly

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Ch. 10 – Pricing: Understanding and Capturing Customer Value
- price = amount of money charged for product/service
 sum of all values that customers give up to gain benefits of having/using
product/service
 remains one of most important elements determining firm’s market share
& profitability
 only element in marketing mix that produces revenue
 others represent costs
 most flexible, can be changed quickly
- customer value-based pricing = uses buyer’s perceptions of value, not seller’s cost,
as key to pricing
 price considered before marketing program set
 first assesses customer needs & value perceptions
 sets target price based on customer perceptions & resulting product design
 good-value pricing = offering just right combo of quality & good service at
fair price
 everyday low pricing (EDLP) = charge constant, everyday low price
w/ few/no temporary price discounts
oi.e. Walmart
 high-low pricing = charge higher prices on everyday basis but run
frequent promotions to lower prices temp on selected items
 value-added pricing = attaching value-added features & services to
differentiate company’s offers & justifying higher prices
 i.e. Cineplex VIP
- cost-based pricing = setting prices based on costs for producing, distributing,
selling product plus fair rate of return for its effort & risk
 product driven
 marketing must convince buyers that product’s value at that price justifies
purchase
 if price too high, company must settle for lower markups/lower sales
 disappointing profits
 cost-plus pricing (markup pricing) = adding standard markup to cost of
product
 any pricing method that ignores consumer demand & competitor
prices not likely to lead to best price
 popular b/c
osellers more certain about costs than demand
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by tying price to cost, sellers simplify pricing
owhen all firms in industry use this pricing method, prices tend
to be similar, minimizing price competition
 break-even pricing (target return pricing) = setting price to break even on
costs of making & marketing a product OR setting price to make target return
 major problem: fails to consider customer value & relationship b/t
price & demand
oas price increases, demand decreases
- competition-based pricing = setting prices based on competitors’ strategies, prices,
costs & market offerings
 how does company’s market offering compare w/ competitors’ offerings in
terms of customer value?
 how strong are current competitors & what are their current pricing
strategies?
- target costing = pricing that starts w/ an ideal selling price, then targets costs that
will ensure that the price is met
- pure competition = market consists of many buyers & sellers trading in a uniform
commodity (i.e. wheat, copper, financial securities)
 no single buyer/sellers has much effect on going market price
 marketing research, prod dvlpt, pricing, advertising, sales promo play
little/no role
- monopolistic competition = market consists of many buyers & sellers who trade
over range of prices rather than single market price
 range of prices occurs b/c sellers can differentiate their offers to buyers
 sellers use branding, advertising, personal selling to set their offers apart
- oligopolistic competition = market consists of few sellers who are highly sensitive
to each other’s pricing & marketing strategies
 each seller alert & responsive to competitors’ pricing strategies & moves
- pure monopoly = market consists of 1 true seller
 can be gov monopoly, private regulated monopoly, private non-regulated
monopoly
 pricing handled differently in each case
- inelastic demand = demand hardly changes w/ small change in price
- elastic demand = demand changes greatly w/ small change in price
- company sets pricing structure that covers diff items in its line
 changes over time as prods move thru life cycles
 company adjusts prices to reflect changes in costs & demand, account for
variations in buyers & situations
- market/price skimming = setting high price for new prod to skim max revenues
layer by layer from segments willing to pay high price
 company makes fewer but more profitable sales
 prod’s quality & image must support its higher price, enough buyers must
want prod at that price
 costs of producing smaller volume cannot be so high that they cancel adv of
charging more
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