MKT 3010 1st Edition Lecture 14 Outline of Last Lecture Importance of pricingThe key to a successful pricing strategyPrice is a signalThe firm’s pricing objectivesProfit orientationSales orientationCompetitor orientationCustomer orientationFactors that affect pricing decisionsCostomersCostOutline of Current Lecture Factors that affect pricing decisionsCompetitionChannel memberMacro influences on pricingThe InternetThese 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.Economic factorsPricing strategiesLegal aspects and ethics of pricingCurrent LectureChapter 14: Pricing Concepts for establishing Value Cont.Factors that Affect Pricing Decisions- Competitiono Monopoly- One firm controls the market: Less price competition, fewer (one) firmso Oligopoly- A handful of firms control the market (price wars between the major firms): More price competition, fewer firmso Monopolistic Competition- Many firms selling differentiated products (similar products being sold but consumer is able to see differences, clothing) at different prices: Many firms, not a lot of price competition, consumer is more worried about product than priceo Pure Competition- Many firms selling commodities for the same prices: Many firms, more price competition, no brand equity involved, consumers only concerned about price.- Channel Members***see chapter 15 for detailso Manufacturers- want their brand to increase equityo Wholesalerso Retailers- want increased sales, going to try to make the product cheaperMacro Influences on Pricing- The Interneto Has made consumers more price sensitiveo New Product categories- more people can access a wider variety of productso Growth of online auctions- more customers can set their own price- Economic Factorso Cross-shopping: going out of your income tier to shop for certain goodso Globalizationo Local economic conditionsPricing Strategies- Everyday low pricing- tries to show consistency with low prices- High/low pricing- lower prices to temporarily increase demand- New product pricing strategieso Price skimming- strategies of selling innovations at a really high price, and lowering it as it diffuses through the innovation curve. For this to happen: quality and image of product must support the higher price, producing at a smaller volume to get back margin from product launch, high barriers to entry (must be hard for competitors to enter market)o Marketing penetration- sales orientation to build market share to build revenue and eventually increase profit. Experience curve- drop in unit costs (production) as volume of sales increase. Could also come from lower marketing costs, and price of product can go down. This is economies of scale. This market must be price sensitive, at first we only care about revenue but eventually costs must go down, price must be competitive relative to competition.Legal Aspects and Ethics of Pricing- Deceptive/Illegal price advertisingo Deceptive reference prices- inflated or fictitious reference price o Leader pricing- the store sells product at or a little above the cost to the storeo Loss leader pricing- when the store sells the product at a loss **why would this be illegal??o Bait and switch- when a retailer offers a great deal but then switches it with another lower quality product.- Predatory Pricing- a company trying to “devour” another company: coming in with a lower price to drive out another company. Illegal under Sherman act and federal trade commission acto Loss leader pricing- is a firm engaging in predatory pricing- Price Discrimination- selling the same product to different entities at different prices, Robinson Pattman act prevents this, does not include serviceso Three times when legal: quantity discount, if market conditions change and it is justifiable, need cash flow- Price fixing- when one firm colludes with another firm to set a priceo Horizontal- across collusion, two or more manufacturers, two or more retailers, etco Vertical- when a manufacturer and a wholesaler or wholesaler and retailer collude (within the same chain)Key terms:MonopolyOligopolyMonopolistic CompetitionPure CompetitionCross-shoppingGlobalizationEveryday low pricingHigh/low pricingPrice skimmingExperience curveLeader pricingLoss leader pricingBait and switchPredatory pricingPrice discriminationPrice fixing