MGTA02H3 Chapter Notes - Chapter 7: Psychological Pricing, Pricing Strategies, Price Skimming

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12 Apr 2012
Chapter 7 – The 4 Ps- Price
It is an important element of the marketing mix because it influences both consumer
demand for a product and company profitability. Consumers want products that satisfy
their needs, and they want them to be available in the right places but they also look for
the lowest prices.
Five key points:
- Cannot set the price without understanding your cost
- Markup: You need to be able to define, explan markup and calculate the markup
- Strategie: skimming and presentation, explain
- Understanding your cost Variables V.S. Fixed Costs
- Break even analysis: Price, cost and quantity
Pricing Objectives and Tools
In pricing, managers decide what the company will receive in exchange for the
products. Company often price products to maximize profits but they also hope to attain
other pricing objectives when selling their products. Pricing decisions are also
influenced by the need to survive in the marketplace, by the social and ethical concerns
and even by corporate image.
Pricing to Meet Business Objectives
Price: No magic formula for determining price. It begins with costs. You must cover
cost of good sold. (The costs of making the products). The only way to set prices is to
understand the cost.
Markup: What the business adds to cost of good sold to arrive its price is called
markup. No restriction nor formula to determine the price.
Profit maximizing objectives
Pricing: decide what the company will receive in exchange for its products
Bear in mind that customer will not buy your product unless they think the price is right
unless they think is a fair exchange.
- Setting the price too low= miss the opportunity to make additional profit= loser
money on each exchange
- Setting the price too high=Sell fewer units=Excess inventory=Reduce Production
-When calculating the profits, managers weigh receipts against costs of production
and capital resources, which the company must tie u to generate that level of profit.
-Pricing for Ebusiness Objectives: Internet provides a more direct link between
producer and ultimate consumers avoid the costs of entailed by the wholesalers and
retailers. Another factor in lower internet prices is the ease of comparison shopping.
Market Share Objectives
Market Share: A company’s percentage of the total market sales for a specific product.
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