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It develops a new product It introduces its regular product into a new distribution channel or geographical area It enters bids on new contract work ( as in Industrial Sale )
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Product cost
Value-based Pricing
Setting prices based on buyers perceptions of value rather than on the sellers cost. Cost-Based Pricing
Setting prices based on the costs for producing distributing and selling the product plus a fair rate of return for effort and risk.
PRICE COMPETITION
NON-PRICE COMPETITION
where a company tries to distinguish its product or service from competing products on the basis of low price.
firm tries to distinguish its product or service from competing products on the basis of attributes like design and workmanship
Selecting the pricing objective Determining demand Estimating costs Analyzing competitors costs, prices, offers Selecting a pricing method Selecting the final price
Survival Maximize current profit Maximize market share Maximize market skimming Product - quality leadership
Each price will lead to a different level of demand and have a different impact on a companys marketing objectives.
Demand and price are inversely related i.e. Higher the price, lower the demand
Shared cost ( part of cost is borne by other party ) Sunk investment (product used is required as a complement to earlier purchase ) Inventory effect ( buyers can not store the product ) Items bought more frequently ( more sensitive ) / infrequently ( less sensitive )
Unique value effect ( quality , prestige or exclusiveness ) Substitute awareness by buyers Difficult comparison by buyers End benefit ( expenditure small part of total income ) Total expenditure ( purchase cost is insignificant compared to the cost of end product ) Low cost items (less sensitive ) / high cost items ( more sensitive)
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This determines the changes in demand with unit change in price If there is little or no change in demand, it is said to be price inelastic. If there is significant change in demand, then it is said to be price elastic.
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There are few or no substitutes Buyers readily do not notice the higher price Buyers are slow to change their buying habits Buyers think that the higher prices are justified
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Examples
Property Taxes
Insurance Rent
Examples
Direct Material Cost Direct Labor Cost Factory Supplies
Break Even Pricing setting price to break even on the cost of making and marketing a product
Break Even Volume the point at which total revenue and total cost curves cross each other.
Example
Total cost = fixed cost + variable cost Break even volume = Price variable cost Fixed cost = 300000 20 10
30,000 units
Typical in mass market products chocolate bars, food stuffs, household goods, etc.
Suitable for products with long anticipated life cycles May be useful if launching into a new market
High price, Low volumes Skim the profit from the market
Suitable for products that have short life cycles or which will face competition at some point in the future (e.g. after a patent runs out) Examples include: Playstation, jewellery, digital technology, new DVDs, etc.
Price set in accordance with customer perceptions about the value of the product/service
Examples include status products/exclusive products
Charging a different price for the same good/service in different markets Requires each market to be impenetrable
Requires different price elasticity of demand in each market
Prices for air travel differ for the same journey at different times of the day