MKT 3010 1st Edition Lecture 13Chapter 14: Pricing Concepts for establishing ValueImportance of pricing- Judgment of value- what you are getting for what you give up- Challenging to manage- what is the rational inside the consumer to make them buy a product at a certain price- The only revenue generator- Important in purchase decisions- “it all comes down to price”- if two products are equal we look at price; we correlate quality with priceThe key to a successful Pricing Strategy- Match the product or service with the consumer’s value perceptions.Price is a Signal- Prices can be both too high and too lowo Too high: might signal low value--for what I’m giving up, I’m not getting enough in returno Too low: might signal poor quality***Consumers don’t particularly want a low price, they want high valueThe Firm’s Pricing Objectives- Profit Orientationo Maximizing profits- Total Revenue (want to make as large as possible) vs. Total costs (as low as possible, cutting costs is often a short term strategy)o Target Return Pricing- most common- looking for return on investment (ROI): profit generation via available assets ROI= Net profits after taxes Total assets = Higher is better, most commonly used in business because it is quantitatively basedThese 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.- Sales Orientationo Focus on increasing sales (revenue)o Concerned with overall market share- want to build a prestige brand or go after most price sensitive customer?o Premium Pricing- Price products above competitors’ price- Competitor Orientationo Status quo pricing Seek to maintain existing pricing Equal competitors’ prices- Customer Orientationo Assess needs and values of customer firsto Then based on that, target price seto This starts with market research firstFactors that affect pricing decisions- Customerso Demand curves and pricing Demand curve- demand increases as price decreases Curve changes for things like Prestige productso Price elasticity of demand How changes in price impact the change in demand Formula:Price elasticity= %change in quantity demanded %change in price Price elastic- small change in price (price sensitive) yields a significant change in quantity demanded—durable goods Price inelastic- small change in price does not yield a significant change in quantity demanded—necessities***more sensitive to price increase than price decrease.o Factors influencing price elasticity Income effect- when a consumer makes more they can afford higher quality product, or more demanded Substitution effect- the more substitutes in the market, the higher price elasticity of demand—firms try to combat this with a unique brand and customer loyalty Cross-price elasticity- how do two product in the market react to each other in the market- Complementary products-products used together, if quantity demandedof product A goes up, the Price of Product b will go down (but perfectly in sync)- Substitute product-negatively related, quantity demanded of product A goes down, price of product B goes down.- Costso Break-even point- want to know this, this is where total costs= total revenue**profits=0Total costs= fixed costs+ variable