 Show Marketing Chapter 16 Pricing The Importance of Price Price - Price is that which is given up in an exchange to acquire a good or service Price x Sales Unit = Revenue Revenue - Costs = Profit Profit drives growth, salary increases. and corporate investment The Importance of Price To the seller: o Price is revenue and profit source To the consumer: o Price is the cost of something Pricing Objectives Profit-Oriented Pricing Objectives •Profit Maximization - Setting prices so that total revenue is as large as possible relative to total costs •Satisfactory Profits o What will satisfy stakeholders? Trade off: time, effort Corporate Social Responsibility (CSR) Risk - higher risk needs higher profits •Target Return on Investment - Net profit after taxes divided by total assets o ROI = Net Profit after Taxes/Total Assets Sales-Oriented Pricing Objectives •Market Share - A company’s product sales as a percentage of total sales for that industry to the seller, price is ____ to the consumer, price is ____ ____ allocates resources in a free market economy what is given up in an exchange to acquire a good or service consumers are interested in obtaining a ____ price which means a ____ at the time of the transaction *reasonable *perceived reasonable value the price paid is based on the ____ consumers expect to receive from a product not necessarily the ____ they actually receive when goods or services are exchanged, the trade is called ____ sacrifice effect of price: what is sacrificed to get a good or service? information effect of price: infer quality info based on price *higher quality = higher price *convey status the price charged to customers multiplied by the number of units sold what pays for every activity of the company? trends influencing price: *flood of new products *increased availability of bargain priced private and generic brands *price cutting as a strategy to maintain or regain market share *internet used for comparison shopping *u.s. recession from late 2007 to 2009 1. profit oriented 2. sales oriented 3. status quo pricing objectives must be ____, ____, and ____ to survive in todays competitive market *specific *attainable *measurable profit oriented pricing objectives: 1. profit maximization 2. satisfactory profits 3. target return on investment setting prices so that total revenue is as large as possible relative to total costs represents a reasonable level of profits that is consistent with the level of risk an organization faces net profit after taxes divided by total assets return on investment (ROI) net profit after taxes divided by total assets the most common profit objective is a target ____, or the return on total assets what represents a firms effectiveness in generating profits with the available assets ROI puts a firms profits into perspective by showing ____ relative to ____ ROI needs to be evaluated in terms of the ____ environment, ____ in the industry, and ____ conditions *competitive *risks *economic in general, firms seek ROIs in the ____ to ____ % range, depending on the industry sales oriented pricing objectives: *market share *sales maximization a companys product sales as a percentage of total sales for that industry market share can be reported in ____ or ____ of a product, and the results may be ____ *dollars, units *different many companies believe that ____ or ____ market share is an indicator of the effectiveness of their marketing mix larger market shares often means ____ profits, thanks to ____, ____, and ____ *higher *economies of scale, market power, ability to compensate top quality management many companies with low market share survive if they are in a ____ growth industry and experience ____ product changes sales maximization: ____ term objective to maximize sales; ignores ____, ____, and the ____; may be used to sell off ____ *short *profits, competition, marketing environment *excess inventory maximization of cash should never be a ____ run objective because cash maximization may mean ____ or ____ profitability status quo pricing objectives: *maintain existing prices *meet competitions prices status quo pricing requires ____ planning and is essentially a ____ policy
after pricing goals are established, ____ are set the price set for products depends on 2 factors: *the demand for the good and the cost to the seller for that good the quantity of a product that will be sold in the market at various prices for a specified period the quantity of a product that will be offered to the market by a supplier at various prices for a specific period demand curve: the quantity of a product that people will buy depends on its ____; the higher the price, the ____ goods or services consumers will demand supply curve: at higher prices, manufacturers obtain ____ resources and oriduce ____ products to sell the price at which demand and supply are equal consumers responsiveness or sensitivity to changes in price a price below equilibrium results in a ____ because the demand is ____ than the available supply a shortage puts ____ pressure on price at a price above equilibrium, the demand is ____ than the available supply and a ____ is created consumers buy more or less of a product when the price changes an increase or a decrease in price will not significantly affect demand an increase in sales exactly offsets a decrease in prices, so total revenue remains the same % change in quantity demanded of good A / % change in price of good A if E is greater than 1, demand is ____ if E is less than 1, demand is ____ if E is = to 1, demand is ____ elasticity of demand: price goes down, revenue goes up, demand is ____ elasticity of demand: price goes down, revenue goes down, demand is ____ elasticity of demand: price goes up, revenue goes up, demand is ____ elasticity of demand: price goes down, revenue goes down, demand is ____ elasticity of demand: price goes up/down, revenue stays the same, demand is ____ factors that affect elasticity of demand: *availability of substitutes *price relative to purchase power *product durability *a products other uses *rate of inflation availability of substitutes: when many substitutes are available, it is easy to switch products, making demand ____ price relative to purchasing power: if a price is so low that it is an inconsequential part of an individuals budget, demand will be ____ product durability: repairing durable products rather than replacing them prolongs their useful life. thus, people are sensitive to the price increase, and the demand is ____ a products other uses: the greater the number of uses for a product, the more ____ demand tends to be. if a product has only one use, the quantity purchased probably will not vary as price varies rate of inflation: when inflation is high, demand becomes more ____--- rising price levels makes consumers more price ____ a technique for adjusting prices that uses complex mathematical software to profitably fill unused capacity when competitive pressures are high, a company must know when it can ____ prices to ____ its revenues who first developed yield management systems yield management systems employs techniques such as: *discounting early purchases *limiting early sales at discounted prices *overbooking capacity yield management systems make it possible for a company to: 1. stimulate demand when demand is low 2. maximize profits when demand is high variable cost and fixed cost type of cost that varies with changes in level of output type of cost that does not change as level of output changes average variable cost (AVC) = total variable cost / quantity of output average total cost (ATC) = total costs / quantity of output the change in total costs associated with a one unit change in output methods used to set prices: -markup pricing -keystoning -profit maximization pricing -break even pricing the cost of buying the product from the producer plus amounts for profit and for expenses not otherwise accounted for the practice of marking up prices by 100%, or doubling the cost what is the most popular method to establish a selling price? a method of setting prices that occurs when marginal revenue equals marginal cost the extra revenue associated with selling an extra unit of output, or the change in total revenue with a one-unit change in output the change in total costs associated with a one unit change in output as long as revenue is ____ than cost, the firm should continue manufacturing and selling the product determines what sales volume must be reached before the company breaks even and no profits are earned. (its total costs equal its total revenue) total fixed costs / fixed cost contribution price - avg. variable cost the advantage of a break even analysis is that it provides a ____ of how much the firm must sell to break even and how much profit can be earned if a ____ sales volume is obtained other determinants of price: -stages of the PLC -competition -distribution strategy -promotion strategy -perceived quality stages in the product life cycle 1. intro 2. growth 3. maturity 4. decline in the intro stage of the PLC: prices are ____ to recover ____ costs; demand originates in the ____ of the market and is relatively ____ *high *development in the growth stage of the PLC: prices ____ due to the ____ product supply from competitors; ____ product appeal to a ____ market; ____ costs from economies of scale *stabilize *increased in the maturity stage of the PLC: prices ____ as competiton ____ and ____ firms are eliminated; ____ become a significant cost factor; usually only the most ____ manufacturers remain - decrease -increase -high cost -distribution -efficient in the decline stage of the PLC: prices ____ until ____ is left in the market; at that time, prices begin to ____ and may ____as the product moves into the specialty goods category - decrease -only one firm -stabilize -increase the competition: ____ may induce firms to enter the market competition can lead to ____
distribution strategy for manufactures: offer a ____ or ____; use ____ distribution; ____; avoid businesses with ____; develop ____ -larger profit margin -trade allowance -exclusive -franchising -price cutting discounters -brand loyalty distribution strategy for wholesalers/retailers: sell ____ the brand; buy ____ goods stocking well-known branded items at high prices in order to sell store brands at discounted priced selling against the brand a program that searches the web for the best price for a particular item business-to-business auctions are likely to be the dominant form of online auctions in the future 2 types of shopping bots: broad-based and niche oriented most shopping bots give ____ listings to ____ who pay for the privilege, and not necessarily the ____ retailer -preferential -e-tailors -lowest priced example of an internet auction ____ auctions are likely to be the dominant form in the future price is often used a a ____ tool to ____ consumer interest the pittsburgh zoo offering $5 admission for wearing a tie-dye shirt is an example of... using price as a promotional tool demands of large customers: requires suppliers to pay ____ if stores profit margins arent met; fines for violations of ____, ____, and ____ -cash rebates -ticketing, packing, shipping rules charging a high price to help promote a high quality image when a purchase decision involves uncertainty, consumers tend to rely on a ____ as a predictor of good quality; consumers assume that "you ____" high price get what you pay for -ease of use -versatility -durability -serviceability -performance -prestige When it sets prices so that the total revenue is as large as possible relative to total cost?Profit-maximization pricing means setting prices so that total revenue is as large as possible relative to total costs.
What is the pricing strategy to maximize revenue?Penetration pricing
When you use a penetration pricing strategy, you initially charge low prices—usually lower than your competitors—then make gradual price increases as your market share grows. This helps you launch with a high volume of sales right away.
How firms decide their prices?In a competitive market, sellers compete against other suppliers to sell their products and buyers bid against other buyers to obtain the product. This competition of sellers against sellers and buyers against buyers determines the price of the product. It's called supply and demand.
What is status pricing?A status-quo pricing strategy involves setting our product price equal to some benchmark over time. In other words, it can be that we match our competitors price. We engage in price matching. Another way we could go about this is what's called a price guarantee.
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Setting prices so that total revenue is as large as possible relative to total costs
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