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Pricing

Pricing. After today’s class you should understand: The factors to consider in pricing How pricing relates to other parts of the marketing mix How pricing strategies vary across the product lifecycle. Internal Factors to Consider in Pricing . Marketing Objectives Survival (Penetration)

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Pricing

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  1. Pricing After today’s class you should understand: • The factors to consider in pricing • How pricing relates to other parts of the marketing mix • How pricing strategies vary across the product lifecycle.

  2. Internal Factors to Consider in Pricing • Marketing Objectives • Survival (Penetration) • Current Profit Maximization (Skimming) • Market Share Leadership (Penetration) • Product Quality Leadership (Skimming) • Costs • Caapcity (Don’t vary with production) • overhead • Variable (Vary directly with every unit produced) • Materials • Expenses (Controllable and Vary depending on the sales goals for the period.) • Promotional/Selling Costs

  3. The Learning Curve and Pricing • As people do the same thing over and over they do it faster and with less mistakes. This is known as the learning curve. • Companies which make a lot of a product tend to have variable cost advantages. • In addition, companies which make a lot of a product have low fixed costs per unit. • Thus, they can price lower and still make the same gross margin as another company. This can be a strategic competitive advantage.

  4. The Learning Curve-An Example Company A Company B Units 50,000 100,000 Fixed Costs $100,000 $125,000 Fixed Costs per unit $2.00 $1.25 Variable costs per unit $1.00 $.75 Total Costs per unit $3.00 $2.00

  5. Price Elasticity of Demand % change in quantity demanded % change in price • The more elastic the demand the more it pays for the seller to lower the price.

  6. Quick Think: What are the Factors influencing Price Elasticity

  7. Drivers of the factors influencing price elasticity The other elements of the marketing mix. Product Place Promotion

  8. Buyer Reaction to Price Changes • Reference prices are prices that customers carry around in their mind when they look at a given product. • Promotional pricing tends to lower reference prices. • Once you’ve lowered the reference price it is very difficult to raise it again. • Ways to successfully raise price • Negotiated pre-agreements • Successful arguments based on cost or inflation increases • Unbundling • Salesforce management

  9. Competitor responses to Price Changes • Competitors are most likely to react when • The competitor is large • The number of competitors in the market is small • When the product is uniform • When buyers are well-informed • Competitor interpretations of price cuts • A market share grab • A company in trouble • Company wants the industry as a whole to reduce prices and increase the size of the pie.

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