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Chapter 10

Chapter 10 Introductory Marketing Notes

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University of Guelph
Marketing and Consumer Studies
MCS 1000
Douglas Adlam

Chapter 10 MarktingPricing A strategic marketing decisionWhat is PricePrice The amount of money charged for a product or service or the sum of the values that buyers exchange for the benefits of having or using the productservice Only element in marketing mix that produces revenue all other elements represent costs Smart marketers treat pricing as a key strategic tool for creating and capturing customer valueFactors to consider when setting Prices Customer perceptions of the products value set the ceiling for prices Product costs set floor for pricesValueBased Pricing Setting price based on buyers perceptions of value rather than on the sellers cost Marketer cannot design a productmarketing program and then set the price Price is considered before the marketing program is set CostBased Pricing is product driven Company designs what it considers a good product adds u the costs of making the productsets price that covers costs plus a target profit Marketing must then convince buyers that products value justifies its price Value based first assesses customer needs and value perceptions and than sets prices accordinglyGood Value Pricing Offering just the right combination of quality and good service at a fair price Sometimes has involved introducing less expensive versions of established branname products Eg McDonalds ValueMenu Sometimes has involved redesigning existing brands to offer more quality for a given price or same quality for lessEveryday Low Pricing EDLP A pricing strategy that charges comparatively low prices all the time with few or no salesHighLow Pricing Involves charging higher prices on everyday bases but running frequent promotions to lower prices temporarily on selected itemsValueAdded Pricing A strategy of developing features that add value to the market offering rather than cutting price Companies want to build the companys marketing power its power to escape price competition and justify higher prices and margins without losing market share One way to increase is to adopt value added pricing and instead of cutting prices to beat competitorsDevelop valueadded features that differentiate the marketing offerHow cost affects pricing decisions Pricing strategy must also take into consideration the companys costs what it costs to run the company pay employees and to produce the productFixed CostsVariable Costs Fixed Costs Cost that dont vary w number of products producedTotal CostsFixed CostsVariable CostsVariable Costs All the costs that vary according to how many products are produced Eg packaging parts etcCostPlus Pricing Adding a standard markup to the total costs of producing or purchasing the product Typically used by retailers who purchase products from manufacturersdistributors and then resell themSimplest method to use Marketers might not be maximizing their potentialBreakEven Pricing Setting price to breakeven on the costs of making and marketing a product or setting price to make a target profit Marketing managers calculate the price at which the company will break even on the product Used in combination w target profit pricing A pricing method that calculates breakeven price for a productthen adds a desired target price
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