MRKT 341 Exam III

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MRKT 341 Exam III

Chapter 9

Price
- the amount of money charged for a product or service, or the sum of the values that consumers exchange for the benefits of having or using the product or service

Price and the marketing mix:
only element to produce revenues
most flexible element
can be changed quickly
Price competition
Common pricing mistakes

Factors affecting price decisions

General Pricing Approaches
Value based pricing
uses buyers’ perceptions of value rather than seller’s costs to set price measuring perceived value can be difficult
business to business firms seek to retain pricing power
value-added strategies can help
value pricing at the retail level
everyday low pricing (EDLP) vs. high-low pricing
consumer attitudes toward price and quality have shifted during the last decade introduction of less expensive versions of established brands has become common 1. Assess customer needs and value perceptions

2. Set target price to match customer perceived value
3. Determine costs that can be incurred
4. Design product to deliver desired value at target price

Types of costs:
variable, fixed (overhead), total costs
How costs vary at different production levels will influence price setting Experience (learning) curve effects on price

Cost Based Pricing (Cost Plus Pricing)
Adding a standard markup to cost
Ignores demand and competition
Popular pricing technique because:
It simplifies the pricing process
Price competition may be minimized
It is perceived as more fair to both buyers and sellers
1. Design a good product
2. Determine product costs
3. Set price based on cost
4. Convince buyers of product’s value

Competition – Based Pricing:
Also called going rate pricing
May price at the same level, above, or below the competition Bidding for jobs is another variation of competition-based pricing Sealed bid pricing

Factors to Consider When Setting Price
Marketing objectives
Marketing positioning influences pricing strategy
Not-for-profit objectives
Partial or full cost recovery
Social pricing
Other pricing objectives
Survival
Current profit maximization
Market share leadership
Product quality leadership
Marketing Mix strategies
Pricing must be carefully coordinated with the other marketing mix elements Target costing is often used to support product positioning strategies based on price Non-price positioning can also be used

Organizational considerations
Price negotiation is common in industrial settings
Some industries have pricing departments
Who sets the price?
Small companies: CEO or top management
Large companies: divisional or product line managers
Nature of market and demand
Types of markets
Pure competition
Monopolistic competition
Oligopolistic competition
Pure monopoly
Consumer perceptions of price and value
Price-demand relationship
Demand curve
Price elasticity of demand

Competitors’ strategies and prices
Consider competitors’ costs, prices, and possible reactions when developing a pricing strategy Pricing strategy influences the nature of competition
Low price low margin strategies inhibit competition
High price high margin strategies attract competition
Benchmarking costs against the competition recommended
Other external factors
Economic conditions
Affect production costs
Affect buyer perceptions of price and value
Reseller reactions to prices must be considered
Government may restrict or limit pricing options
Social considerations may be taken into account

Market Skimming Pricing
setting a high price for a new product to skim maximum revenues layer by layer form segments willing to pay the high price

Market Penetration Pricing
setting a low price for a new product in order to attract a large number of buyers and a large market share

Product Mix Pricing Strategies
Product Lines Pricing
Setting price steps between product line items
Price points
Optional product pricing
Pricing optional or...
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