Chapter 13 Pricing Concepts for Establishing Value service o 5 C s of Price Company Objectives o Price the overall sacrifice a consumer is willing to make to acquire a specific product or Profit orientation implemented by specifically focusing on target profit pricing maximizing profits or target return pricing o Target profit pricing implemented when firms have a particular profit goal as their overriding concern Use price to stimulate a certain level of sales at a certain profit per unit o Maximizing profits relies primarily on economic theory If a firm can accurately specify a mathematical model that captures all the factors required to explain and predict sales and profits it should be able to identify the price at which its profits are maximized Problem is that actually gathering the data on all these relevant factors and somehow coming up with an accurate mathematical model is extremely difficult Sales orientation firms using to set prices believe that increasing sales will help the firm more than will increasing profits o Premium pricing the firm deliberately prices a product above the prices set for competing products to capture those customers who always shop for the best or for whom price does not matter Competitor Orientation strategize according to the premise that they should measure themselves primarily against their competition o Competitive parity they set prices that are similar to those of o Status quo pricing changes prices only to meet those of the their major competitors competition Customer Orientation explicitly invokes the concept of value Sometimes a firm may attempt to increase value by focusing on customer satisfaction and setting prices to match consumer expectations Or no haggle price structure to make the purchase process simpler and easier for consumers thereby lowering the overall price and ultimately increasing value Customers Demand curve how many units of a product or service consumers will demand during a specific period of time at different prices Price elasticity of demand how changes in a price affect the quantity of the product demanded The ratio of the percentage change in quantity demanded to the percentante change in price o Elastic price sensitive when the price elasticity is less than negative one negative one o Inelastic insensitive when its price elasticity is greater than o Income effect change in the quantity of a product demanded b consumers due to a change in their income o Substitution effect consumers ability to substitute other products for the focal rand Greater the availability of substitute prdocuts the highter the price elasticity of demand for any given product will be
View Full Document
Unlocking...