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University of Toronto Scarborough
Management (MGT)
Janelle Leboutillier

Pricing and Distributing Goods and Services Pricing Objectives and Tools Pricing to Meet business Objectives (profit maximizing; market share, survival) pricing: deciding what the company will receive in exchange for its product pricing objectives: goals that producers hope to attain in pricing products for sale profit maximizing objectives: company must set price at a level where it makes maximum profit for each item, and sells the maximum number of items (ex. Coca-Cola raising prices when temperature rises, Senators raising prices when playing division rivals) pricing for Ebusiness objectives: lower prices and costs; more direct link between producer and consumer (no wholesaler); easy comparison shopping; joining forces for greater purchasing power is easier for businesses and consumers market share: a companys percentage of the total market sales for a specific product market share objectives: companies use prices to establish market share; lower prices likely means more people will be willing to try new product. Lowering price in order to get a larger market share. Will make a small sacrifice but will result in larger profits overall o dominating a market means consumers are more likely to buy a certain product because they are familiar with the label o sometimes the main objective of a company is loss containment and survival (rather than profit maximizing or market share); ex. John Deere priced agricultural equipment low enough to ensure survival Price Setting Tools cost oriented pricing: must take costs (insurance, advertising, products) into consideration when pricing items to make profit (doesnt apply to movies) o markup percentage = markup sales price using cost oriented pricing, variable costs are covered, some of fixed costs are covered, but to plan profit, a break-even analysis is necessary (this will show the relationship between cost, volume, and profits) o variable costs: those costs that change with the number of goods or services products o fixed costs: those costs unaffected by the number of goods or services produced or sold o break-even analysis: as assessment of how many units must be sold at a given price before the company begins to make a profit o break-even point: the number of units that must be sold at a given price before the company covers all of its variable and fixed costs break even point = total fixed costs (price-variable costs) BEP: Profit = 0 Pricing Strategies and Tactics Pricings Strategies (new products, old products) pricing existing products: 3 options- price above, below or near market price o pricing above makes product seem to have superior quality o pricing below can be successful if quality is acceptable price leadership: the dominant firm in the industry establishes product prices and other companies follow suit (ex. in steel, gasoline, processed food) price fixing: the illegal process of producers agreeing among themselves what prices will be charged pricing new products: 2 options- price skimming, penetration-pricing
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