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ODU MKTG 311 - Pricing the Product

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MKTG 311 1st Edition Lecture 18 Outline of Last Lecture I. ServicesII. The 4 I’s of ServicesIII. Addresses Inventory Characteristic of the ServiceIV. Classification of ServicesV. Goods/Services ContinuumVI. Ways to Evaluate ServicesVII. Layers of Service OfferingOutline of Current Lecture I. 6 Steps to Setting the Price for a ProductII. Step 1: Developing Pricing ObjectivesIII. Other Factors That Limit What Price is ChargedIV. Evaluating the Pricing EnvironmentV. Step 2: Estimating DemandA. Demand curvesB. Shifts in demandC. How to estimate demandD. Price elasticity of demandCurrent LectureI. 6 Steps to Setting the Price for a ProductThese 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.II. Step 1: Developing Pricing ObjectivesPricing Objectives: involve specifying the role of price in an organization’s marketing and strategic plans.- Sales objectives- Given that a firm’s profit is high enough for it to remain in business, an objective may be to increase sales revenue, which can lead to increases in market share and profit.- Market share objectives- The ratio of the firm’s sales revenues or unit sales to those of the industry (competitors plus the firm itself).- Profit objectives-1. Managing for long-run profits: In which companies give up immediate profit by developing quality products to penetrate competitive markets over the long term.2. Maximizing current profit objective: Such as for a quarter or year, is common in many firms because the targets can be set and performance measured quickly.3. Target return objective: Occurs when a firm sets a profit goal, usually determined by its board of directors.- Unit volume- The quantity produced or sold, as a pricing objective.- Survival- Profits, sales, and market share are less important objectives of the firmthan mere survival.- Social responsibility- A firm may forgo higher profit on sales and follow a pricing objective that recognizes its obligations to customers and society in general.III. Other Factors That Limit What Price is Charged-Evaluating the Pricing Environment-Competition/Structure of the market1. Pure Competition: Many sellers, many buyers; Example: Agriculture; seen as a commodity product. Price is dependent upon supply and demand; no pricing flexibility.2. Monopolistic: Many buyers and sellers; but product can be differentiated in terms of benefits, services, qualities and style of the product. Companies can charge a lot more due to these differentiations. Lots of price flexibility. Example: Fast-food Industry3. Oligopolistic: Just a few sellers (control market), sensitive to what others are doing in the market. Use status quo pricing, one might raise price, others follow. Less pricing flexibility than monopolistic. Example: Mobile Market4. Pure Monopoly: One seller, can be regulated or unregulated. Example: Dominion Power (regulated); Limited pricing flexibility, more for unregulated.IV. Evaluating the Pricing Environment- The Competition/Structure of the Market:V. Step 2: Estimating DemandWhat is Demand? Customer’s desire for a product.How much the consumer wants and how does that change as price increases or decreases.A. Demand curves: Downward sloping = used for normal products. Curved = Prestige products. Example: Rolex (as price increases)B. Shifts in demand: Upward- increase demand and help increase price. Downward- government relations for example.C. How to estimate demand: Good has a close substitute. Example: Coke and Pepsi. Changing consumer taster and preferences.- Income effect: Higher income, Higher the inelastic demand.2 Critical Concepts:- Total Market Demand- Number of buyers or potential buyers in market multipliedby average amount each consumer is willing to buy.- Company Market ShareD. Price elasticity of demand- A measure of the sensitivity of customers to changes in price- Elastic versus Inelastic Demand- Influences on price


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