chapter 14

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University of Toronto Scarborough
Management (MGM)
Ingrid L.Stefanovic

INTRODUCTION Many pricing issues that the manager must understand o Include the setting of pricing policies, strategic decisions as to the level at which price should be set, and the numerous day-to-day issues in pricing management MARKETING APPROACHES TO PRICING A marketing approach recognizes the numerous valuable concepts developed by economic theory A marketing approach to pricing adds the dimension of consumer analysis to the economic and cost analysis The market approach asks the question of how potential customers would respond to such a price A Pricing Decision Flow Chart A marketing approach to pricing begins and ends with the companys marketing strategy o It sets the general parameters for pricing decisions and becomes the reference point against which pricing effectiveness is measured Establish Pricing Objectives Objectives can relate to profits, volume, competition, or prestige Once pricing objectives have been established, economic and cost, and consumer analysis takes place Establish a Price Range The ceiling price comes from consumer analysis o It is the greatest amount that some segment of the market would be willing and able to pay for this product The floor price is a function of cost o Short run The firm cannot price below its variable cost of product without losing money on each sale o Long run There has to be some contribution to overhead Establish an Initial price Competitive analysis and legal and ethical analysis will almost always result in a price that is somewhere between the floor and the ceiling If fairly large range between the firms floor price and what customers will actually pay for the product, competitive action will usually force the firm to drop prices Legal or ethical considerations tend to result in an initial price that is below the ceiling price Establish a Final Price The final price for which a product is actually sold often will be somewhat different than the initial price
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