MKTG101 Lecture Notes - Lecture 8: Perfect Competition, Monopolistic Competition, Oligopoly
Chapter 8 (PRICE)
Pricing objectives
• Pricing objectives tend to focus on various combinations of the following issues:
o profitability
o long-term prosperity
o market share
o positioning
Costs
The cost mix includes:
• Fixed costs – Do not vary with changes in output
• Variable costs – Do vary with changes in output
• Marginal costs – Variable costs expressed in cost per extra unit of production
• Shared costs – Cost shared across products
• Ad futios
• Adetisig, selling, distribution, R&D costs
Price floor
• A minimum price that must be charged to cover costs.
• While a business may sell at a loss for a short time (e.g., to generate cash flow,
attract customers to trial a new product, etc.), it cannot maintain this approach.
• Low prices may generate high sales volume, but may conflict with high- quality,
differentiated positioning.
• Piig also liked to pootio:
o Bargain prices need to be widely advertised
o Premium prices less likely to be featured in advertising copy
Cost considerations
Evaluating cost structure requires a detailed understanding of relationships between price,
demand and costs, and the link to profits. Two useful approaches:
Break-even analysis
➢ An analysis designed to estimate the volume of unit sales
required to cover total costs.
➢ Important to test price and volume sensitivity.
➢ Price elasticity
Contribution margin
➢ The difference between the price and the variable cost per unit.
Margins
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Document Summary
Pricing objectives: pricing objectives tend to focus on various combinations of the following issues, profitability long-term prosperity, market share, positioning. Price floor: a minimum price that must be charged to cover costs, while a business may sell at a loss for a short time (e. g. , to generate cash flow, attract customers to trial a new product, etc. Evaluating cost structure requires a detailed understanding of relationships between price, demand and costs, and the link to profits. An analysis designed to estimate the volume of unit sales required to cover total costs. Important to test price and volume sensitivity. The difference between the price and the variable cost per unit. Revenue must be examined in terms of: a(cid:448)e(cid:396)age (cid:396)e(cid:448)e(cid:374)ue (cid:894)total (cid:396)e(cid:448)e(cid:374)ue/u(cid:374)its(cid:895) a(cid:374)d (cid:373)a(cid:396)gi(cid:374)al (cid:396)e(cid:448)e(cid:374)ue. An approach to pricing in which a percentage or dollar amount it added to the cost of product in order to determine its selling price: cost-plus pricing, ma(cid:396)k-up pricing.
