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Why Pricing is Important
answer
-Obtains value back
-Matches brand positioning
-Affects demand
-Can be used as a segmentation tool
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Demand
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tends to decrease as price increases
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Elasticity
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How much does demand (units sold) increase (or decrease) with a price change?
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inelastic demand
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implies that customer will purchase even if price increases
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price sensitivity
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Greater When...
-Don’t care much about the purchase
-Don’t have strong preferences
-Don’t have strong brand loyalty
-Have limited income
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cost-plus princing
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Unit Cost/1-X%(Where X% is the intended return)
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Conjoint Analysis
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Show product combinations with price; ask “Which do you most prefer?” “Next?”
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Psychology of Pricing
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Our Prediction = Our Model + E (Epsilon)
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Compromise Effect
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The inner/middle choice between two extremes is attractive
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Referent Pricing
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People compare price to some referent, either an externally available price or an internally stored price
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price discrimination
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the business practice of selling the same good at different prices to different customers (illegal)
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Segment Pricing
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modified versions of a product are marketed to different segments for different prices (legal)
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Yield Management
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using price and scheduling to manage demand
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Two-Part Tariffs
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Charge a fixed and variable usage fee
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Coupons
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Redemption rate- 1%
only relevant to coupon clippers
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Game Theory
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is used to estimate likely results of price cuts and competitive response
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Auctions
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English auctions: bids start low & increase
Dutch auctions: bids start high & decrease
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Value
answer
not a good idea to compete on price
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