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MGTA02H3 (361)
Chapter 7

Chapter 7 summary notes

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University of Toronto Scarborough
Management (MGT)
Chris Bovaird

MGTA04 Chapter 7 PRICING OBJECTIVESAND TOOLS - pricing: deciding what the company will receive in exchange for its product Pricing to Meet Business Obejctives - pricing objectives: goals that producers hope to attain in pricing products for sale - companies price their products in objective for prot-maximization - market share: a companys % of total market sales for a specic product - during difcult times, survival may become companys objective Price Setting Tools - cost oriented pricing considers the rms desire to make a prot and takes into account the need to cover production costs Markup % = markupsales price - every dollar made, (if markup is 50), 0.50$ would be gross prot for store. - variable costs: costs that change wthe number of goodsservices produced or sold - xed costs: costs unaffected by the # of goodsservices produced or sold - break-even analysis: an assessment of how many units must be sold @ a given price before the company begins to make a prot - break even point: the # of units that must be sold @ a given price before the company covers all of its variable and xed costs. - break even point(units) = total xed costs (price - variable cost) - prot (@0) = total revenue - (total xed costs + total variable costs) PRICING STRATEGIESAND TACTICS - a rm can set price abovebelow or @ the price of old product. - if set above, people think its higher quality Pricing Strategies - price leadership: the dominant rm in the industry establishes product prices and other companies follow along. - price skimming: the decision to price a new product as high as possible to earn the maximum prot on each unit sold - penetration pricing: the decision to price a new product very low to sell the most units possible and to build customer loyalty. Pricing Tactics - price lining: the practice of offering all items in certain categories @ a limited # of predetermined price points - psychological pricing: the practice of setting prices to take advantage of the nonlogical reactions of consumers to certain types of prices - odd-even psychological pricing: a form of psychological pricing in which prices are not stated in even dollar amounts. (e.g. 99.95$ seems less than 100$) - discount: any price reduction offered by the seller to persuade customers to purchase a product - cash discount: consumers paying cash rather than credit gets a better deal - seasonal discounts: lower prices are offered to customers making a purchase @ a time of year when sales are traditionally low 1 www.notesolution.com
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