Management and Organizational Studies 1021A/B Chapter Notes - Chapter 27: Profit Margin, Car Rental, Marketing Mix

• School: Western University
• Department: Management and Organizational Studies
• Course: Management and Organizational Studies 1021A/B
• Professor: Bob Larose

Document Summary

Skimming pricing= setting the highest initial price that those customers really desiring the product are willing to pay. These customers are not very price-sensitive as they weigh new product"s price, quality, and ability to satisfy their needs against the same characteristics of substitutes. As these customer"s demand is satisfied, the firm lowers price to attract a more price- sensitive segment. Penetration pricing= setting a low initial price on a new product to appeal immediately to the mass market (cid:523)opposite of skimming pricing(cid:524) Advantage: potential to build sales, market share and profits. Disadvantage: profit margin is relatively low; if costs to produce drop after producing a lot, new entrants will face higher unit costs until they catch up with volumes produced of early entrant. Prestige pricing= setting a high price so that quality- or status-conscious consumers are attracted to the product and buy it. Higher price greater status associated greater exclusivity, as fewer ppl can afford to buy it.