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MGMA01H3 (184)
Chapter 14

chapter 14

7 Pages
87 Views

Department
Management (MGM)
Course Code
MGMA01H3
Professor
Ingrid L.Stefanovic

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INTRODUCTION
Many pricing issues that the manager must understand
oInclude 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 company’s marketing strategy
oIt 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
oIt 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
oShort run
The firm cannot price below its variable cost of product without losing
money on each sale
oLong 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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oAffected by the firms pricing policies regarding skimming, penetration,
flexibility, and other issues
Evaluate Profitability and Marketing Mix Consistency
There must be an evaluation process when the final price has been established
oFirst test is to see if the pricing strategy will meet financial goals such as return on
investment (ROI), target rate of return on sales, or a payback period
oSecond test is to evaluate the selected price in terms of the product, channel,
advertising, and personal-selling strategies that will be used in the market
segmentation question
A low price is appropriate when the product category is at the mature stage in its cycle,
when there is little promotion, the product is mass-produced, market coverage is intense,
production is capital-intensive, technological change is slow, the product is need to
complete the product line, few services are offered, the product is disposable, or the life
cycle is short
PRICE AND THE MARKETING MIX
One marketing strategy will assign a major role to price as a means of attracting customer
and sales
In other marketing mixes, price will play a much less role
Pricing Objectives
Pricing objectives shape pricing policies and procedures
A firm may have as its primary goal becoming the dominant supplier in the domestic
market
oIts marketing objective might then to achieve maximum sales penetration in all
sales regions
oAdopting low price policy
Many marketers rank two profitability-oriented objectives higher than meeting
competitive prices
oA specified rate of return on investment and specified total profit levels
Pricing objectives can be classified in four major groups
oProfitability objectives: include profit maximization and target return goals
oVolume objectives
oCompetition-meeting objectives
oPrestige objectives
Profitability Objectives
The traditional pricing objective has been to maximize profits
Profits = Total Revenues – Total Costs
Total Revenue = Price x Quantity Sold
Profit maximization is the point where the addition to total revenue is just balanced by
an increase in total cost
oThis approach is referred to as marginal analysis
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Description
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 www.notesolution.com
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