Textbook Notes (363,420)
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MGMA01H3 (184)
Chapter 11

Chapter 11 Notes

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University of Toronto Scarborough
Management (MGM)
Alison Jing Xu

Chapter 11 Pricing Notes What is a Price? price 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; historically, it has been the major factors affecting buyer choice price is the only element in the marketing mix that produces revenue; all other elements represent costs one frequent problem is that many companies are too quick to reduce prices to get a sale rather than convincing buyers that their products greater value is worth a higher price; and other common mistakes include pricing that is too cost oriented rather than customer-value oriented, and pricing that does not take the rest of the marketing mix into account Factors to Consider When Setting Prices customer perceptions of the products value set the ceiling for prices and product costs set the floor for prices in setting its prices between these two extremes, the company must consider a number of other internal and external factors, including its overall marketing strategy and mix, the nature of the market and demand, and competitors strategies and prices Customer Perceptions of Value when customers buy a product, they exchange something of value to get something of value in return effective, customer-oriented pricing involves understanding how much value consumers place on the benefits they receive from the product and setting a price that captures this value Value-Based Pricing value-based pricing setting price based on buyers perceptions of value rather than on the sellers cost value-based pricing means that the marketer cannot design a product and marketing program and then set the price price is considered along with the other marketing mix variables before the marketing program is set a company using value-based pricing must find out what value buyers assign to different competitive offers; however, companies often find it hard to measure the value customers will attach to a product good-value pricing offering just the right combination of quality and good service at a fair price value-added pricing attaching value-added features and services to differentiate a companys offers and charging higher prices Company and Product Costs cost-based pricing setting prices based on the costs for producing, distributing, and selling the product plus a fair rate of return for effort and risk; a companys cost may be an important element in its pricing strategy Costs as a Function of Production Experience experience curve (learning curve) drop in average per-unit production cost that comes with accrued production experience if a downward-sloping experience curve exists, this is highly significant for the company not only will companys unit production cost fall, but it will fall faster if firm makes and sells more during a given time period Cost-Plus Pricing cost-plus pricing adding a standard mark-up to the cost of the product any pricing method that ignores demand and competitor prices is not likely to lead to the best price mark-up pricing remains popular for many reasons(1) sellers are more certain about costs than about demand; (2) when all firms in the industry use this pricing method, prices tend to be similar and price competition is thus minimized; and (3) many people feel that cost-plus pricing is fairer to both buyers and sellers Break-Even Analysis and Target Profit Pricing break-even pricing (target profit pricing) setting price to break even on the costs of making and marketing a product, or setting price to make a target profit; uses the concept of a break-even chart the break-even chart shows the total cost and total revenue expected at different sales volume levels the manufacturer should consider different prices and estimate break-even volumes, probable demand, and profits for each Other Internal and External Considerations Affecting Price Decisions internal factors affecting pricing include the companys overall marketing strategy, objectives, and marketing mix, as well as other organizational considerations; while external factors include the nature of the market and demand, competitors strategies and prices, and other environmental factors Overall Marketing Strategy, Objectives, and Mix target costing pricing that starts with an ideal selling price, then targets costs that will ensure that the price is met other companies deemphasize price and use other marketing mix tools to create non-price positions often, best strategy is not to charge the lowest price but rather to differentiate the marketing offer to make it worth a higher price some marketers even position their products on high prices, featuring high prices as part of their products allure Organizational Considerations www.notesolution.com
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