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Chapter 7 – The 4 Ps - Price
PRICING OBJECTIVES AND TOOLS
Pricing is deciding what the company will receive in exchange for its product.
Pricing to Meet Business Objectives
Companies often price products to maximize profits, but they also hope to attain
other pricing objectives.
Pricing objectives are goals that producers hope to attain in pricing products for sale.
If prices are set too low, the company will probably sell many units of its product, but
it may miss the opportunity to make additional profit on each unit–and may in fact
lose money on each exchange.
If prices are set too high, the company will make a large profit on each item but will
sell fewer units, resulting in excess inventory and a need to reduce production
operations. Again, the firm loses money.
To avoid the above two, companies try to set prices to sell the number of units that
will generate the highest possible total profits.
In calculating profits, managers weigh receipts against costs for materials and
labour to create the product. But they also consider the capital resources that the
company must tie up to generate that level of profit.
Pricing for Ebusiness Objectives
Many ebusinesses are lowering both costs and prices because of the internet’s unique
Advantages: because the web typically provides a more direct link between producer
and ultimate consumer, buyers avoid the costs entailed by wholesalers and retailers.
Another factor in lower internet prices is the ease of comparison shopping. Both
consumers and businesses can force lower prices by joining together in the interest of
greater purchasing power.
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