Marketing Management

Card Set Information

Author:
gmhammer
ID:
83581
Filename:
Marketing Management
Updated:
2011-05-03 22:00:04
Tags:
Pricing
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Description:
Demand versus Cost Base Pricing
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  1. Demand
    Refers to customers' desire for products.

    • How much of a product do consumers want?
    • How will this change as the price goes up or down?
  2. The Price Elasticity of Demand
    Price elasticity of demand is a measure of sensitivity of customer to changes in price.

  3. The Price Elasticity of Demand: What affects price elasticity of demand?
    • Availability of substitutes
    • Necessity of Product
    • Size of the purchase as a % of income for customer.
  4. Elasticty by Number
    • Elastic when greater than 1
    • Inelastic when less than 1
    • Unitary Elasticity when equal to 1
  5. Demand Oriented Price Setting Approaches: Skimming Price Strategy
    Firm charges a high, premium price for its new product with the intention of reducing it in future response to market pressure.
  6. Demand Oriented Price Setting Approaches: Penetration Price Strategy
    New product is introducted at a very low price (market share gain-eliminate competition)
  7. Demand Oriented Price Setting Approaches: Trial (Intro.) Pricng
    Product carries a low price for a limited time period (gain initial users)
  8. Trial (Intro.) Pricing
  9. Demand Oriented Price Setting Approaches: Competitive Pricing
    Firm sets price at (or close to) average price in market.
  10. Competitive Pricing
  11. Demand Oriented Price Setting Approaches: Value Pricing
    Firm sets price just below average price in market.
  12. Value Pricing
  13. Demand Oriented Price Setting Approaches: Prestige Pricing
    Firm sets price just above average price in market.
  14. Prestige Pricing
  15. Demand Oriented Price Setting Approaches: Price Lining
    Different price/quality levels are set to meet different segments of the market.
  16. Price Lining
  17. Demand Oriented Price Setting Approaches: Luxury Pricing
    Firm sets price to take advantage of an abnormal demand curve.
  18. Luxury Pricing
  19. Cost Oriented (Exact Cost) Price Setting Approaches
    • Advantages: Simple to calculate. Relatively risk free. Helps firm achieve planned growth goals.
    • Disadvantages: Fails to consider demand, competition, and image. Difficult to accurately establish total costs.
  20. Cost Oriented (Exact Cost) Price Setting Approaches: Variable Costs
    The cost of producing a single unit.

    Fluctuate depending on how many units are produced.
  21. Cost Oriented Price Setting Approaches: Fixed Costs
    Costs that a firm must incur regardless of the number of units produced.

    Remain the same regarless of amount produced.
  22. Cost Oriented Price Setting Approaches
    Establishing Cost:

    Unit Cost= variable cost+ fixed cost/expected unit sales.

    Often firms have trouble accurately predicting both fixed costs and expected unit sales. Variable costs tend to be easier.
  23. Cost Oriented Price Setting Approaches: Nominal Mark-up
    On Cost

    Price= Unit Cost+ Fixed Mark-Up
  24. Nominal Mark-Up
  25. Cost Oriented Price Setting Approaches: Percentage Mark-up
    On Cost

    Price= Unit Cost+(total cost * markup %)

    Example: $25+($25*.20)= $30
  26. Percentage Mark-Up

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