Pricing

Pricing Price Given up in exchange to acquire a good or service Price is typically money exchanged for a good or service, however it may also be time lost while wating to acquire the good or service High price food in hotel?pay for convenience What?s included in price? Price Tax Delivery Time Etc? Importance To seller: price determine revenue To buyer: price determine cost Marketers must determine cost Money PRICE goods/services Revenue: price charged to customer times units sold Profit: Revenue-expenses; drive growth, salary increases Trends influencing Price Flood of new products Increased availability of bargain price (generic brands) Price cutting as strategy to maintain market share Internet used for comparison shopping Bottom of Pyramid Concept Market to lower cost Empower people Not to take advantage of Fishermen in china?more competitive (internet usage) Price Objectives Profit oriented Profit maximization: set prices so high to make highest profit Satisfactory: set prices just enough to get by Return on investment: net profit after tax/total asset Sales oriented Market share: compare percent of all total sales in industry Can be calculated by units or dollars Sales Maximization: Short term objectives Ignore profit, competition and market environment May be used to sell excess inventory Status quo Price the way competitors do Passive, denies demand, little planning, must distinct self Demand Determinants Demand: wat demanded by consumers Supply curve Elasticity of Demand Elastic demand Unitary elastic Inelastic Factors affecting elasticity of demand Availability of substitutes Price relative to purchasing power Product durability A product?s other uses Rate of inflation Yield Management Systems Technique for adj prices that uses complex math software to fill unused capacity Stimulate demand when demand is low Maximize profit when demand is high Seasonal products/services Cost determinants of Price Method of set price Markup pricing Cost of buying produt from producer and amount for profit and exp not otherwise accounted for Keystoning Practice of marking up prices y 100% (double the cost) Profit maximization Set price where marginal rev=marg cost Marginal revenue Extra revenue associated with selling an extra unit of output OR change in total revenue with a one-unti change in output Break even Quantity produced and demanded covers fixed costs No profit, ignored demand Limitations: difficult to determine if it?s a fixed or variable cost Other Determinants of Price Product life cycle Intro: high Growth: stable Maturity: decrease Decline: decrease?stable--high Competition High prices induce firms to enter market Competition can lead to price wars Global comp?manufacture cheaper overseas Distribution strategy Manufacturers Larger profit margin or trade allowance Use exclusive distribution Franchising Avoid business with price cutting discounters Brand loyalty Wholesalers Sell against the brand Buy gray market goods (buy directly overseas) Sell against brand: stock well known brans and offer diff brands at lower costs Impact of the Internet Product selection Shopping bots Internet auctions Second opinions from experts Dimension of Quality Ease of use Versatility Durability prestige Price Revenue Demand is: Down Up Elastic Down Down Inelastic Up Up Inelastic Up Down Elastic Up or down Same unitary