Transcript Low prices

Price
“The exchange value of a good or service in the
marketplace.”
Value is based on:
 Tangible and intangible benefits
 Consumers’ perceptions of a brand
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Importance of Price
An organization must establish fair and competitive
prices while generating adequate revenues and profit.
WAL-MART
Low prices (perceived
value) attracts customers
Harry Rosen
High prices (perceived
value) attracts customers
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Factors Influencing Price
• Consumers
• Nature of Market
• Channel Members
• Costs
• Profit Objectives
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Nature of Market
The market structure and the degree of competition
in the market influence priding strategy.
 Monopoly
 Oligopoly
 Monopolistic Competition
 Pure Competition
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Nature of Market
Monopoly
Single seller sets price,
usually subject to regulatory
approval.
Oligopoly
A few large sellers follow
each other on price. If one
goes up the others follow.
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Nature of Market
Monopolistic
Competition
Pure
Competition
Among similar competing
brands the market leader sets
the price; others establish
competitive or lower prices
The market supply and
demand sets the price.
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Consumer Demand and Price
Principle:
1. Consumers purchase greater quantity at
lower prices
2. The effect of a price change on demand
must be factored into pricing strategy.
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Elasticity of Demand
Price Elasticity of Demand:
Measures the effect of a price change on the
quantity purchased.
Elastic
Inelastic
Small change in price; large
change in volume
Change in price does not have
significant impact on volume
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Channel Members Influence Price
Mfg.
Wholesaler
Organizations want distributors
to charge prices that agree with
the brand’s overall marketing
strategy.
Retailer
Consumer
1. Adequate Margin
2. Fair Treatment
3. Special Deals
4. Impact of Increases
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Costs Influence Price
All production, marketing and transportation
costs must be factored into the price decision.
Cost of Goods
Marketing
Transportation
Other Costs
+
Profit
Margin
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Price
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Costs Influence Price
All attributed costs and the desired profit margin
influence the price charged. Costs can be
controlled by:
 Improving operational efficiency
 Using less expensive materials
 Shrinking size
 Relocating manufacturing facilities
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Pricing Objectives
Objectives
Objectives are:
1. Stated quantitatively
Sales
Profit
ROI
2. Influenced by competitors
3. Influenced by cost increases
from suppliers
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Competitive Pricing
Pricing decisions help establish a desired competitive
position in the marketplace
 Above competition
 Equal to competition
 Below competition
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Pricing Methods
Full Cost
Pricing
Demand Based
Pricing
Competitive
Pricing
Total costs plus
profit determines
price
What consumers
will pay
determines price
Position relative
to competitors
determines price
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Break-Even Analysis
A break-even analysis shows how many units
must be sold to exactly break even, given fixed
and variable costs, and a price.
Above the BEP, the firm makes a profit.
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Demand Based Pricing
The reaction of customers at retail determines the
price to be charged.
Backward Pricing
Working back from the
retail price, the
manufacturing cost is
determined.
Forward Pricing
A mark-up is added at
each level of the
channel.
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Pricing and the Law
 Price Claims that Mislead
 Improper Use of MSLP
 Double Ticketing / Bar Code Violations
 Bait and Switch
 Predatory Pricing
 Price Fixing
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Bartering
Exchanging goods and services for other goods
and services rather than for money. It is a
reciprocal agreement among participants.
 Barter Exchange Operations
 Corporate Barter Companies
Barter company takes a commission on the “buy” and
“sell.”
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Online Auctions
An auction is a method of sale whereby an object
for sale is secured by the highest bidder.
B2B
Lowest price bid often wins
B2C
Consumers compete against
each other to drive up price
of item.
C2C
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