Chapter 9 - Pricing.docx

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Management and Organizational Studies
Management and Organizational Studies 1021A/B
James O' Brien

Chapter 9Pricing Pricemoney or other considerations exchanged for the ownership or use of a good or service Barterexchanging goods and services for other goods and services Valueperceived benefitsPrice Value pricingthe practice of increasing a products benefits while maintaining or decreasing price Firms profit equationProfitTotal RevenueTotal CostUnit price x Quantity soldTotal Cost Pricing decisions affect both total revenue sales and total cost General Pricing ApproachesFirst find a approximate price level to use as a reasonable starting point 4 common approaches to do this are demandoriented costoriented profitoriented and competitionoriented approachesDemandOriented Approaches o Skimming Pricingsetting highest initial price that customers really wanting the product are willing to pay o Penetration Pricingsetting low initial price to appeal immediately to mass market o Prestige Pricingsetting a high price so quality or statusconscious consumers will buy it o Oddeven Pricingsetting prices a few dollars or cents under an even number o Target Pricingmanufacturers estimate the price the consumer would pay for product and then work backward through markups taken by retailers to determine what price they can charge for product o Bundle Pricingmarketing two or more products in one single package price o Yield Management Pricingcharging of difference prices to maximize revenue for a set amount of capacity at a given time price varies based on time day week season to match demand and supplyCostOriented Approaches o Standard Markup Pricingsell products at price that exceeds costs of producing sourcing and marketing them The difference between selling price and its cost is markup SPCostsSP
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