MKT 100 Chapter Notes - Chapter 11: Geographical Pricing, Predatory Pricing, Price Ceiling
28 Jun 2018
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MKT 100 - Chapter 11 - Pricing Concepts and Strategies: Establishing Value
Price - the overall sacrifice the consumer is willing to make to acquire a specific
product
Marketers should view pricing decisions as a strategies opportunity to create value
rather than as an after thought to the rest of the marketing mix
The 5 c’s of pricing
1. Company objectives
oProfit orientation - focusing on target profit pricing, maximizing
profits or target return pricing
Target profit pricing - firms have a particular profit goal as
their overriding concern; uses price to stimulate a certain level
of sales at a certain profit/unit
Maximizing profits strategy - mathematical model that
captures all the factors required to explain and predict sales
and profits, should be able to identify the price where its
profits are maximized
Target return pricing - for firms less concerned with absolute
level of profits and more interested in that rate at which their
profits are generated relative to their investments
oSales Orientation - based on the belief that increasing sales will help
the firm more than will increasing profits
oCompetitor orientation - based on the premise that the firm should
measure itself primarily against its competition
Competitive parity - a firm’s strategy of setting prices that are
similar to those of major competitors
oCustomer Orientation - pricing orientation that explicitly invokes
the concept of customer value and setting prices to match customer
expectations
2. Customers
oUnderstanding consumer’s reactions to prices
oDemand curve - shows how many units of a G or S consumers will
demand during a specific period at different prices
oPrestige products or services - those that consumers purchase for
statues rather than functionality
High price leads to higher quantity sold
oPrice elasticity of demand - measures how changes in a price affect
the quantity of the product demanded; ratio of percentage change in
quantity demanded to the percentage change in price
Income effect - the change in the quantity of a product
demanded by consumers because of a change in their income
find more resources at oneclass.com
find more resources at oneclass.com
Substitution effect - consumers ability to substitute other
products for the focal brand
Cross-price elasticity - the percentage change in demand for
product A that occurs in response to a percentage change in
price of product B
Complementary and substitute products
3. Costs
oVariable Costs - vary with production volume (labour and materials)
oFixed costs - remain essentially at the same level regardless of
changes in production
oTotal cost - sum of variable and fixed costs
oBreak even point - the point at which the number of units sold
generates just enough revenue to equal the total costs (profit = 0)
oContribution per unit - the price less the variable costs per unit;
variable used to determine the break-even point in units
4. Competition
oMonopoly - when only one firm provides the product or service in an
industry
oOligopolistic competition - when a few firms dominate a market
oMonopolistic competition - when many firms sell closely related
products (substitutes but not perfect substitutes)
oPure competition - when different companies sell commodity products
that consumers perceive as substitutable
5. Channel Members
oChannel members (manufacturers, wholesalers and retailers) have
different perspectives when it comes to pricing strategies
oGrey market - employs irregular but not necessarily illegal methods, it
legally circumvents authorized channels of distribution to sell goods at
prices lower than those intended by the manufacturer
Other influences on pricing
The internet
oInformation online has made consumers more price sensitive and
open to new categories of products
oSearch engines and online auction sites (lower price alternatives)
oCoupon promotions (groupon)
Economic Factors
oCross shopping - the pattern of buying both premium and low-
priced merchandise or patronizing both expensive, statues
oriented retailed and price-oriented retailers
oCompetition, disposable income, and unemployment all may signal
the need for different pricing strategies
find more resources at oneclass.com
find more resources at oneclass.com
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MKT 100 Full Course Notes
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Document Summary
Mkt 100 - chapter 11 - pricing concepts and strategies: establishing value. Price - the overall sacrifice the consumer is willing to make to acquire a specific product. Marketers should view pricing decisions as a strategies opportunity to create value rather than as an after thought to the rest of the marketing mix. The 5 c"s of pricing: company objectives, profit orientation - focusing on target profit pricing, maximizing profits or target return pricing. Target profit pricing - firms have a particular profit goal as their overriding concern; uses price to stimulate a certain level of sales at a certain profit/unit. Maximizing profits strategy - mathematical model that captures all the factors required to explain and predict sales and profits, should be able to identify the price where its profits are maximized. Income effect - the change in the quantity of a product demanded by consumers because of a change in their income.
