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Pricing Concepts
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Price
Barter
Price Competition
Nonprice Competition
Barter
Price Competition
Nonprice Competition
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Price
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the value paid for a product in a marketing exchange
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Barter
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the trading of products
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Price Competition
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emphasizing price as an issue and matching or beating competitors' prices
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Non-price Competition
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emphasizing factors other than price to distinguish a product from competing brands
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Equation to find Profit
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Proft = Total Revenue - Total Costs
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Equation to find Profits
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Profits = (Price x Quantity Sold) - Total Costs
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Markup
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the difference between the cost of a good and its selling price
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Price Elasticity of Demand
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a measure of the sensitivity of demand to changes in price
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Elastic Demand
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A change in price causes an opposite change in quantity demanded
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Break-Even Point
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where the costs of producing a product equal the revenue made from selling the product
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Break-Even Equation
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BE = fixed costs / ( price - variable cost)
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Marginal Analysis
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examines what happens to a firm's costs and revenues when production or sales changes by one unit
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Marginal Cost
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extra cost incurred for producing one more unit of product
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Marginal Revenue
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change in total revenue when a firm sells one additional unit of product
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Types of Costs
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-Fixed
-Average Fixed
-Variable
-Average Variable
-Average Total
-Total
-Average Fixed
-Variable
-Average Variable
-Average Total
-Total
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Fixed Costs
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do not vary with change in number of units sold or produced
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Averaged Fixed Cost
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the fixed cost per unit produced (fixed cost/Units produced)
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Variable Costs
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vary directly with changes in the number of units produced or sold
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Average Variable Costs
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variable cost per unit produced (Variable Costs/Units Produced)
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Average total cost
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AVG VC + AVG FC
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Total Costs
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sum of average fixed costs and average variable costs times the quantity produced
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Reference Price
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The price stored in memory that helps to evaluate the actual price
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Internal Reference Price
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Develops in buyer's mind through experience with product
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External Reference Price
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a comparison price provided by others
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Two Price Strategies
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Framing and Bundling
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Price Framing
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Anchoring price for consumers
"MSRP", Competitor's Price, "You save"
"MSRP", Competitor's Price, "You save"
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Bundling
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offering several products for sale in one "package"
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Unbundling
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charging separately for previously bundled products/services
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Sales Oriented
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set prices low to maximize sales
-firms new to market want to maximize share
-firms new to market want to maximize share
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Profit Oriented
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pricing strategy focused on profits
-target profit pricing (all products must have at least a 10% profit margin)
-maximize profits (use sophisticated mathematical models to maximize profits)
-target profit pricing (all products must have at least a 10% profit margin)
-maximize profits (use sophisticated mathematical models to maximize profits)
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Customer Oriented
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focused on providing value
-Value is gets versus gives
Money, time, effort, risk
-Value is gets versus gives
Money, time, effort, risk
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Three types of General Pricing Strategies
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Skimming
Penetration
Neutral
Penetration
Neutral
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Skimming
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Useful with inelastic demand, early lifecycle stage
Consulting, Health Care
Consulting, Health Care
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Penetration
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Useful with elastic demand, long-term focus
Fast Food, Dry Cleaning
Fast Food, Dry Cleaning
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Neutral
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market-driven, "status quo" strategies
Airlines, Retail Gas
Airlines, Retail Gas
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