MGTA02H3 Chapter Notes - Chapter 7: Independent Business, Distribution Center, Telemarketing

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12 Apr 2012
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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 company’s 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
company’s main objective
Price setting tools (2 basic tool)
Cost oriented pricing
o Firm’s desire to make profit and takes into account the firm’s
production cost
o Markup is usually stated as a perentage for seeling price
o Markup % = (Markup)/ (Sales Price)
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o Some company’s 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 store’s 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 firm’s 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
options
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o 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 pricing in which
prices are not stated in even dollar amount
Discounting: Any price reduction offered by seller to persuade
customer to purchase a product
o Cash discount: A form of discount in which customers paying
cash, rather than buying on credit, pay lower prices
o Seasonal discount: A form of discount in which lower prices
are offered to customers making a purchase at a time of year
when sales are traditionally slow
o Quality Discount: A from of discount in which consumers
buying large amount of a product pay lower prices
International pricing
Conduct research to find out what foreign buys can afford and then
develop products that they can buy
Penetrate markets with lower priced items
Sometimes companies try to increase their foreign market share by
pricing products below the cost priced lower in foreign market
than in the home and it called DUMPING, illegal
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