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MGTA02H3 (363)
Chapter 7

Chapter 7 Pricing .docx

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Department
Management (MGT)
Course
MGTA02H3
Professor
Chris Bovaird
Semester
Winter

Description
Chapter 7 Pricing Objectives and Tools 4/9/2012 7:06:00 PM Pricing: Deciding what the company will receive exchange for its product Pricing to meet Business Objective Pricing Objective: goals that producers hope to obtain in pricing products for sale o Companies price product to maximize profit o Pricing decisions are influenced by the need to survive in the marketplace Profit maximizing Objectives o Prices are too low sell many units of product might miss the opportunity to make additional profit on each unit Might lose money o Prices are set too high high profits but sell few units excess inventory reduce production loses money o Calculating profits, managers weight receipts against costs for materials and labor to create the product Pricing for E-business Objectives: o Internet marketing different kinds of cost and different form of consumers awareness o Lowers the cost and prices both because provides direct link between producer and consumer and avoids the cost of wholesaler and retail and also it is easy to shop online Market share objectives: o In the beginning they are willing to set low prices and get low profits or even loses to get consumers to try their products o Market Share: A companys percentage of the total market sales for specific product o Market shares may outweigh profits as a pricing objective Other pricing Objective: o During recession loss containment and survival may become a companys main objective Price setting tools (2 basic tool) Cost oriented pricing o Firms desire to make profit and takes into account the firms production cost o Markup is usually stated as a perentage for seeling price o Markup % = (Markup)/ (Sales Price) o Some companys this does not work o Market based pricing= consumers are not will to pay more than certain amount Break even Analysis: Cost Volume Profit relationship o Variable cost: The cost that changes with the number of goods or services produced or sold, using cost orientated pricing o Fixed cost: Those costs unaffected by the number of goods or services produced or sold o Break even Analysis: An assessment of how many units must be sold at a given price before the company begins to make 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 cost o Break Even Point = (Total fixed cost)/(Price Variable cost ) o Profit = Total revenue (Total fixed cost +total Variable cost) o Setting a price managers must consider how much buyers will pay and what the stores local competition charges PRICING STRAGEIS AND TACTICS Pricing strategies: that is pricing as a planning activity that affects the market mix Pricing Tactic: Ways in which managers implement a firms pricing strategies Pricing Strategy some products sold for twice the price of other products with similar properties reflects that there is different brand image that attracts different types of customers Pricing Exist products o Consumers believe that higher price higher quality o If the firm charges lower than other firms but can deliver acceptable quality while keeping cost below those higher price optionso Price Leadership: The dominant firm in the industry establishes product price and other companies follow suits Pricing New products o Price skimming Strategy: The decision to price a new product as high as possible to earn the maximum profit on each unit sold o Skimming works only if marketers can convince consumers that a product is truly different from those already on the market o Presentation pricing Strategy: The decision to price a new product very low to sell the most units possible and to build customer loyalty Price Tactic Price Lining: The practice of offering all items in certain categories at a limited number of predetermined price points Psychological Pricing: The practice of setting prices to take advantage of the no logical reaction to consumers to certain types of prices o Odd-even Pricing: A form of psychological prici
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