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Canada (158,081)
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MGM230H5 (7)
Min Zhao (1)
Chapter 11

chapter 11 pricing

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University of Toronto Mississauga
Min Zhao

Chapter 11 Pricing Cons of reducing price: signals the importance of price over value, damaging price war, decrease profits or quality, cost-oriented rather than value-oriented 1. Price  Definition: the amount of money charged for a product or service, or the sum of the values that customers exchange for the benefits of having or using the product or service  The only element in the marketing mix that produces revenue , most flexible 2. Factors of pricing(p350) 1) Customer perception of value  Always start with consumers’ value –price ceiling  Value-based pricing: based on the perception of value rather than cost, considered with other marketing mix before the marketing program is set 1) good-value pricing: offering just the right combination of quality and service at a fair price e.g Taco Bell the value meal, same for less, more for the same e.g everyday low pricing : running frequent promotions to lower prices temporarily selected items(walmart) 2) value-added pricing : attaching value-added features and services to differentiate a company’s offers and charging higher price e.g the umbrella adds more innovation and features, charge higher price  Hard to measure, vary for different customers and situation 2) Company and product cost  Cost-based pricing: based on the costs of producing, distributing, and selling the product plus a fair rate of return for effort and risk-price floor  Types of cost: fixed costs (rent, heat, interest, salaries) and variable cost ( packaging, cost of the product)  Costs at different levels of production -short-run average cost : as plant size increases to a LRAC, produce more, fixed cost is spread out -long-run average cost at an efficient production  Cost as a function of production experience -average cost falls with accumulated production experience ( experience curve/ learning curve) -strategy for experience curve: charge lower price at the early stage of product cycle, gain larger market share, as experience increases , lower the price again Cons? –cheap image, assumption of weak competition, focuses only on one technology  Cost-plus pricing: add a standard markup to the cost of the product e.g lawyer, construction -con
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