Textbook Notes (378,251)
CA (167,133)
UTSC (19,205)
MGM (268)
MGMA01H3 (184)
Chapter 11

Chapter 11 Notes

12 Pages
151 Views

Department
Management (MGM)
Course Code
MGMA01H3
Professor
Tarun Dewan

This preview shows pages 1-3. Sign up to view the full 12 pages of the document.
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 company’s 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
2.Costs at Different Levels of Production
a.Management needs to know how its costs vary with different levels of
production
3.Costs as a Function of Production Experience
a.Experience curve (learning curve) the drop in the average per-unit
production cost that comes with accumulated production experience
b.Risk: aggressive pricing might give the product a cheap image
c.Risk: the strategy also assumes that competitors are weak and not
willing to fight it out by meeting the company’s price cuts
d.Risk: competitors may find a lower-cost technology
4.Cost-Plus Pricing adding a standard markup to the cost of the product
a.Not make sense any pricing method ignores demand and competitor
prices is not likely to lead to the best price
b.Still popular:
i.Sellers are more certain about costs than about demand.
Simplify price, they do not need to make frequent adjustments
as demand changes
ii.When all firms in the industry use this price method, prices
tend to be similar and price competition is thus minimized
iii.Fairer to both buyers and sellers
5.Break-Even Analysis and Target Profit Pricing
a.Break-even pricing setting price to break even on the costs of making
and marketing a product, or setting price to make a target profit
b.Constrain to make fair return on investment
c.Manufacture should consider different prices and estimate break-even
volumes, probably demand, and profits for each
Other Internal and External Consideration Affecting Price Decisions
www.notesolution.com

Loved by over 2.2 million students

Over 90% improved by at least one letter grade.

Leah — University of Toronto

OneClass has been such a huge help in my studies at UofT especially since I am a transfer student. OneClass is the study buddy I never had before and definitely gives me the extra push to get from a B to an A!

Leah — University of Toronto
Saarim — University of Michigan

Balancing social life With academics can be difficult, that is why I'm so glad that OneClass is out there where I can find the top notes for all of my classes. Now I can be the all-star student I want to be.

Saarim — University of Michigan
Jenna — University of Wisconsin

As a college student living on a college budget, I love how easy it is to earn gift cards just by submitting my notes.

Jenna — University of Wisconsin
Anne — University of California

OneClass has allowed me to catch up with my most difficult course! #lifesaver

Anne — University of California
Description
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
More Less
Unlock Document


Only pages 1-3 are available for preview. Some parts have been intentionally blurred.

Unlock Document
You're Reading a Preview

Unlock to view full version

Unlock Document

Log In


OR

Don't have an account?

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


OR

By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.


Submit