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Chapter 11

Chapter 11.docx

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Management (MGM)
Course Code
Alison Jing Xu

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Chapter 11 Price is the amount of money charged for a product or service. It is the sum of all the values that consumers give up in order to gain the benefits of having or using a product or service. → Price is the only element in the marketing mix that produces revenue; all other elements represent costs Factors that reduce price sensitivity: income, fewer perceived substitutes (Disney theme park, concerts, patented tech), unique value/strong brand (LV, Bentley), storability of product Cost-based pricing: involves setting prices based on the costs for producing, distributing, and selling the product plus a fair rate of return for its effort and risk (product driven) → Markup price = unit cost/ (1-desired rate of return) Value-based pricing uses the buyers’ perceptions of value, not the sellers cost, as the key to pricing. Price is considered before the marketing program is set (customer driven) → Good-value pricing: offers the right combination of quality and good service to fair price. (McDonald’s value menus, Armani Exchange) Everyday low pricing (EDLP) involves charging a constant everyday low price with few or no temporary price discounts (Wal-Mart) High-low pricing involves charging higher prices on an everyday basis but running frequent promotions to lower prices temporarily on selected items (Sears) Value-added pricing attaches value-added features and services to differentiate offers, support higher prices, and build pricing power (Mustang) External factors: Pure competition is a market with many buyers and sellers trading uniform commodities where no single buyer or seller has much effect on market price Monopolistic competition is a market with many buyers and seller who trade over a range of prices rather than a single market price. A range of prices occurs because sellers can differentiate their offers to buyers Oligopolistic competition is a market with few sellers who are highly sensitive to each other’s pricing and marketing strategies. There are fewer sellers because it is difficult for sellers to enter the market Pure monopoly is a market with only one seller. In a regulated monopoly, the government permits a price that will yield a fair return. In a non-regulated monopoly, companies are free to set a market price. Reacting to price competition 1. Focus your reactive price cut on only those customers who are likely to be attracted by the competitor’s offer – f
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