Bus M300 1nd Edition Lecture 11 Outline of Current Lecture I Promotional Pricing II EDLP Pricing III Customary Pricing IV Psychological Pricing V Cost Plus Pricing VI Cost Plus Pricing Example Current Lecture I Promotional Pricing a Definition The use of heavily advertised temporary price reductions b Example loss leader store is willing to lose money on one product because they hope you will buy other products Black Friday Sales c Why do firms offer price promotions i Increase demand for product short long term ii Drive traffic to store d Is demand considered elastic or inelastic for a product being considered for a promotion i Elastic II EDLP Pricing a Definition Promotion oriented everyday low pricing strategy b Why would a firm engage in this strategy These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute i Logistics easy appropriate for customers c When might it be most effective i Customers are sensitive d Example Wal Mart has same prices over time while Kroger will constantly have higher or lower prices e Why would a retailer like using the same price i It is easier to predict how much volume they need to bring into the store III Customary Pricing a Definition Tradition drives pricing as customers expect certain prices for certain products b Examples i USA Today ii 1 99 single on iTunes iii Soft drinks IV Psychological Pricing a Price Quality Relationships there is a positive relationship between price and perceived quality in the absence of other product cues b Odd Pricing the belief that certain prices carry information above beyond the price itself and that some prices are more appealing than others c 9 s and 5 s 19 99 consumers exaggerate the magnitude of the difference i The price of cars uses this technique a lot V Cost Plus Pricing a Markup pricing specified amount added to the cost of the product to yield a price i Think of markup as the firm s profit b Cost Price Markup c P MU C d MU on Price MU P e MU on Cost MU C VI Cost Plus Pricing Example a New image is a small company that develops webpages for local firms The company wishes to have a 50 markup on the cost of its services It charges 2000 for a standard web development effort i P 600 ii C 400 iii MU 200 iv MUp 1 3 v MUc 1 2
View Full Document
Unlocking...