Textbook Notes (363,383)
Canada (158,358)
MGMA01H3 (184)
Chapter 11

Chapter 11 Notes

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University of Toronto Scarborough
Management (MGM)
Tarun Dewan

Chapter 11: 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 Price = major factor affecting buyer choice Price = only element in the marketing mix that produce revenue; other = cost Price = most flexible = change quickly Small percentage improvement in price generate large percentage of profit Price plays a key role in creating customer value and building customer relationships Factors To Consider When Setting Prices Price charge = between too high to product any demand and too low to produce profit Customer perceptions of the product value = price ceiling Product cost = price floor When setting prices, the company must consider internal and external factors, including overall marketing strategy and mix, the nature of the market and demand, and competitors strategies and prices Customer Perception of Value Customer oriented pricing = understanding how much value consumers place on the benefits they receive from the product and setting a price that captures this value 1. Value-Based Pricing setting price based on buyers perceptions of value rather than on the sellers cost a. First assesses customer needs and value perceptions b. Sets its target price based on customer perceptions of value c. The target value and price then drive decisions about what costs can be incurred and the resulting product design www.notesolution.com d. Must find out what value buyers assign to different competitive offers 2. 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. design a product, adds up the costs of making, sets a price that covers costs plus target profit 3. Good-Value Pricing offering just the right combination of quality and good service at a fair price a. Involved redesigning existing brands to offer more quality for a given price or the same quality for less, or even less value but rock-bottom prices b. Everyday low pricing (EDLP) involves charging a constant, everyday low price with few or no temporary price discounts c. High-low pricing involves charging higher prices on an everyday basis but running frequent promotions to lower prices temporarily on selected items 4. Value-Added Pricing attaching value-added features and services to differentiate a companys offers and charging higher prices a. Pricing power its power to escape price competition, and justify higher prices and profit margin Company and Product Cost Cost-based pricing lower prices -> smaller margins -> greater sales and profits 1. Types of Costs a. Fixed costs cost that do not vary with production or sales level b. Variable costs cost that vary directly with the level of production c. Total costs sum of the fixed and variable costs for any given level of product d. If cost a company more than competitors to produce and sell its product, the company needs to charge a higher price or make less profit, putting it at a competitive disadvantages www.notesolution.com
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