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- 2. 8- In this chapter, you will learn about… Pricing Considerations Price as an Indicator of Value
- 3. 8- Price is a direct determinant of profits (or losses) Price indirectly affects costs (through quantity
- 4. 8- Profit = Total Revenue – Total Cost Relationship between Price and Profits Total Revenue =
- 5. 8- Pricing Considerations Examples of Pricing Objectives: Maximization of profits Enhancing product or brand image Providing
- 6. 8- Pricing Considerations Demand sets the price ceiling Direct (variable) costs set the price floor Campbell
- 7. Pricing Considerations Conceptual Orientation to Pricing Source: Kent B. Monroe, Pricing: Making Profitable Decisions, 3rd ed.
- 8. 8- Pricing Considerations Factors narrowing pricing discretion Government regulations Price of competitive offerings Organizational objectives and
- 9. 8- Life-cycle stage of product or service Effect of pricing decisions on profit margins of marketing
- 10. 8- Value = perceived benefits price Value can be defined as the ratio of perceived benefits
- 11. 8- Price affects perception of quality Price affects consumer perceptions of prestige Example: Swiss watchmaker TAG
- 12. 8- Pricing Considerations Price as an Indicator of Value Consumer value assessments are often comparative –
- 13. 8- E = percentage change in quantity demanded percentage change in price Pricing Considerations Price Elasticity
- 14. 8- If the percentage change in quantity demanded is greater than the percentage change in price,
- 15. 8- The more substitutes the product or service has, the greater the elasticity The more uses
- 16. 8- Pricing Considerations Product-Line Pricing Cross-Elasticity of Demand relates the price elasticity simultaneously to more than
- 17. 8- the lowest-priced product and price plays the role of traffic builder the highest-priced product and
- 18. 8- Cost data Price data Volume data for individual products and services Impact of price changes
- 19. 8- Pricing Considerations Estimating the Profit Impact from Price Changes Unit volume necessary to break even
- 20. 8- Pricing Considerations Estimating the Profit Impact from Price Changes For example, if a product has
- 21. Estimating the Profit Impact from Price Changes
- 22. 8- Pricing Strategies Full-cost Price Strategies Considers both (direct) variable and (indirect) fixed costs Variable-cost Price
- 23. 8- Pricing Strategies Full-Cost Pricing Full-Cost Pricing Mark-up Pricing Rate-of-Return Pricing Break-even Pricing
- 24. 8- Selling price is determined by adding a fixed amount, usually a percentage, to the (total)
- 25. 8- Equals the per-unit fixed costs plus the per-unit variable costs Useful tool for determining the
- 26. 8- Price is set so as to obtain a pre-specified rate of return on investment (capital)
- 27. 8- Pricing Strategies Rate-of-Return Pricing where P = Unit Selling Price; C = Unit Cost; Q
- 28. 8- Pricing Strategies Rate-of-Return Pricing Example An organization desires an ROI of 15% on an investment
- 29. 8- Stimulate demand (lower fares for seniors) Can increase revenues, and hence, lead to economies of
- 30. 8- Pricing Strategies New-Offering Pricing Strategies Skimming Pricing Strategy (Gillette Mach3) price initially set very high
- 31. 8- Demand is likely to be price inelastic There are different price-market segments The offering is
- 32. 8- Demand is likely to be price elastic The offering is not unique or protected by
- 33. 8- Competitive Interaction refers to the sequential action and reaction of rival companies in setting and
- 34. 8- Managers are advised to focus less on short-term outcomes and attend more to longer-term consequences
- 35. 8- What are competitors’ goals and objectives? How are they different from our goals and objectives?
- 36. 8- Pricing Strategies Pricing and Competitive Interaction A Price War involves successive price cutting by competitors
- 37. 8- The company has a cost or technological advantage over its competitors Primary demand for a
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