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Chapter 7

MGTA02H3 Chapter Notes - Chapter 7: Walmart, Scenic Design, Psychological Pricing

Management (MGT)
Course Code
Chris Bovaird

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Chapter 7: The 4 Ps Price
Variable costs: costs that change with the number of goods and services sold EX. 1 coffee =
1.99; 2 coffee = 1.99 (2)
Fixed costs: costs that aren’t affected by the costs of goods and services sold EX.
Equipment to make coffee, rent space, paying workers
Break-even analysis: assessment to find the best number of goods or services that must be
sold at a given price to make a profit
Break even point (in units) = total fixed costs / [price variable costs]
Pricing Strategies & Tactics
Pricing existing products
High prices: high quality EX. Godiva Chocolate
Low prices: acceptable quality EX. Budget rental car companies Dollar stores
Price leadership: dominant firm establishes a price and other companies follow
along. They compete by using different advertising campaigns, personal selling, and
service, not price EX. Gasoline companies
Pricing new products
Price skimming: Making product really high priced to earn max. profit on each unit
sold EX. HD TVs
Penetration pricing: deciding to price a new product very low to sell the most units
possible and to build customer loyalty EX. Wal-Mart
Price lining: offering all items In certain categories at a limited number of prices EX. Men’s
suits may be prices from $150 - $400, but the store will only charge a limited number of
Psychological pricing: takes advantage of the consumer’s rationality when making buying
Odd-even pricing: customers prefer prices that aren’t stated in dollar amounts
Discounting: price reduction to persuade customers to buy the product
Cash discounts: discount where customers paying with cash get a discount, rather than
buying on credit
Seasonal discounts: to stimulate the sales of products during a certain time of the year
when sales are slow EX. The time before spring
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