Professional Documents
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Demand factors
(Value to buyers)
(price ceiling)
Competitive factors Final pricing discretion Initial pricing Corporate objectives and regulatory constraints Direct variable costs
(price floor)
discretion
for a given price, value decreases as perceived benefits decrease and vice versa price also affects consumer perceptions of prestige; as price increases, demand may also increase
if the % change in quantity demanded is greater than the % change in price, demand is said to be elastic E is greater than 1.
if the % change in quantity demanded is less than the % change in price, demand is said to be inelastic E is less than 1.
the more substitutes a product or service has, the greater its price elasticity
the more uses a product or service has, the greater its price elasticity
the higher the ratio of the price of the product or service to the income of the buyer, the greater the price elasticity
Product-Line Pricing
1)
2)
3)
Pricing Strategies
variable-cost price strategies consider only variable costs, not total costs
Full-Cost Pricing
markup pricing : fixed amount added to the total cost of the product
Variable-Cost Pricing
Variable-cost pricing is demand-oriented pricing. Two purposes:
Assumption is that variable-cost pricing will stimulate demand and increase revenues.
10
demand likely to be price inelastic different price-market segments, appealing to buyers with a higher acceptable price
offering is unique enough to be protected from competition production or marketing costs are unknown capacity constraint exists organization wants to generate funds quickly realistic perceived value of the product exists
11
demand likely to be price elastic offering is not unique enough to be protected from competition
competitors expected to enter market quickly no distinct price-market segments possibility of cost savings with large volume of sales organizations major objective is to obtain a large market share
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13
the action and reaction of rival companies in setting and changing prices for their offerings
managers should focus more on long-term look forward and reason backwards
Competitors goals and objectives ? Assumptions competitor made about itself ? Strengths and weaknesses of competitor ?
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High Risk
undifferentiated stable/decreasing high high declining low many
Low Risk
differentiated increasing low low stable high
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few