MARK 3000 Chapter Notes - Chapter 13: Profit Margin, Marketing Mix, List Price

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MARK 300O Test 3
Chapter 13
1. Pricing Strategies
a. Everyday Low Pricing (EDLP) a strategy companies use to emphasize the
continuity of their retail prices at a level somewhere between the regular, non-sale
price and the deep-discount sale prices their competitors may offer
i. Adds value to a product and allows consumers to spend less of their
valuable time comparing prices (Ex: Walmart)
b. Price Bundling combine two or more different products in a single package
c. Odd-Even Pricing odd number prices imply bargain; even imply quality
d. High/Low Pricing relies on the promotion of sales, during which prices are
temporarily reduced to encourage purchases
i. Attracts those who are not price sensitive and are willing to pay the high
price and those who are price sensitive and wait for the sales
ii. Reference price: the price against which buyers compare the actual selling
price of the product and that facilitates their evaluation process (seller
labels the reference price as regular or original
e. New Product Pricing Strategies
i. Market Penetration Pricing set the initial price low for the introduction,
objective is to build sales, market share, and profits
1. Employs the existing marketing mix and focuses the firms efforts on
existing customers
2. Experience curve effect: refers to the drop in unit cost as the
accumulated volume sold increases (allows even further reductions
in price)
3. Discourages competitors from entering the market because the
profit margin is relatively low
4. Drawbacks: Firm must have the capacity to satisfy the rapid rise in
demand, low price does not signal high quality, and firms should
avoid a penetration pricing strategy is some of the market is willing
to pay more for the product
ii. Price Skimming a strategy of selling new product or service at a high
price that innovators and early adopters are willing to pay in order to
obtain it; after the high-price market segment becomes saturated and sales
begin to slow down, the firm generally lowers the price to capture (or
skim) the next most price-sensitive segment
1. The product must be perceived as breaking new ground
2. May price high at first to limit demand so they have time to increase
their production capacities, may want to gain back some R&D
investments, or may want to test consumers’ price sensitivity
3. Competitors cannot be able to enter (use patents to prevent this)
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