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Canada (161,803)
RSM100Y1 (431)
John Oesch (214)
Chapter 17

Part 4 Chapter 17

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Rotman Commerce
John Oesch

Part 4 Chapter 17 Pricing Objectives and Tools Pricing deciding what the company will receive in exchange for its product Pricing to Meet Business Objectives Pricing objectives goals that producers hope to attain in pricing products for sale Some want to maximize profit Others try to achieve high market share Profit Maximizing Objectives If prices are set too low, company will sell many units but may miss opportunity to make additional profit on each unit, lose money on each exchange If set too high, company will make large profit but sell fewer units, excess inventory and need to reduce production operations, loses money Strategy of charging prices based on market conditions Using prices to manage traffic patterns Toll road fees Firms calculate profits by comparing revenues against costs for materials and labour to create the product Also consider capital resources, cost of marketing Many firms set prices to achieve a targeted level of return on sales or capital investment Market Share Objectives Set low prices for new products to get buyers to try products Trying to establish market share a companys percentage of total market sales for a specific product Even with established products, market share > profits Other Pricing Objectives In difficult economic times, loss containment and survival may become companys main objectives Price Setting Tools Must measure potential impact before deciding final prices Cost-Oriented Pricing Considers firm`s desire to make a profit and takes into account need to cover production costs Store rent, employee wages, utilities, product displays, insurance and cost of buying CDs Markup accounting all costs compared to buying price Eg. CD bought for 8 dollars, makes a profit at 15, thus markup = $7 Markup percentage = Markupsales price Out of every dollar taken in, % = cents, will be taken as gross profit of the store Markup as percentage of cost, CD bought of $8, markup $7 Markuptotal cost cost oriented pricing not always used eg. Movies, same price for ticket regardless of how much it costs to make Break Even Analysis: Cost-Volume-Profit Relationships using cost-oriented pricing, firm will cover variable costs costs that change with the number of goods or services produced or sold will also make money toward paying fixed costs those costs unaffected by the number of goods or services produced or sold break-even analysis assessment of how many units must be sold at a given price before company begins to make a profit break-even point the number of units that must be sold at a given price before company covers all of its variable and fixed costs break-even point (in-units) = total fixed costs (price-variable costs) Profit = total revenue (total fixed costs + total variable costs) Pricing Strategies and Tactics pricing strategy pricing as a planning actvitiy that affects the marketing mix pricing tactics ways in which managers implement a firm`s pricing strategies Pricing Strategies can managers identify single best price for a product, no Tylenol and Advil vary in price by 100% Reflect differences in product costs, but also differing brand image How important is pricing as an element in marketing mix Has major impact on company revenues Pricing Existing Products Firm can set price for exsisting products above, at or below market price High price might mean higher quality
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