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PRICING – SUPPLY and DEMAND

PRICING – SUPPLY and DEMAND. MARKETING 360 Brian Gillespie. Price. The assignment of value, or the amount the consumer must exchange to receive the offering Money Goods Services Favors Votes Anything that has value to the other party

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PRICING – SUPPLY and DEMAND

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  1. PRICING – SUPPLY and DEMAND MARKETING 360 Brian Gillespie

  2. Price • The assignment of value, or the amount the consumer must exchange to receive the offering • Money • Goods • Services • Favors • Votes • Anything that has value to the other party • Price is a marketing tool and a key element in marketing promotions (the easiest P to change). Most retailers highlight product pricing in their advertising campaigns.

  3. Pricing Views • Customers view • what must be given up to obtain the benefits. Customers buy based on value and valued benefits, not price • Sellers view • Price reflects the revenue generated for each product sold and, thus, is an important factor in determining profit

  4. Steps in Pricing

  5. Develop Pricing Objectives • Sales/market objective • Reach a certain level of sales or market share • Profit objective • Make as much money as possible • Best strategy for fads • Competitive effect objective • Have an impact on competition • Cut into their market share • Release a competing product before they do • Customer satisfaction objective • Price transparency • Image enhancement objective • Prestige products priced higher

  6. Estimate Demand • Demand • Customer’s desire for a product • Demand curves • Graphs that show impact of price on demand • Normal products • As price increases, demand decreases • Prestige products • Curvalinear in design • As price increases, demand increases to a maximum point • Eventually demand decreases as price increases

  7. Demand Curves

  8. Shifts in Demand Curves • Price remains constant while demand shifts (up or down) • May be due to • Advertising • Product introduction • Global event • Etc…

  9. Estimating Pullman Thai Food Demand

  10. Certain Dri Deodorant • You are interested in calculating demand for Certain Dri in Spokane. • Spokane has 250,000 residents. • You expect the average person uses 1 stick of deodorant a month. • Certain Dri has a 4% share of the market. • What is the total annual demand for deodorant in Spokane, and what are the annual, monthly and daily demands for sticks of Certain Dri?

  11. % Change in Quantity Demand Price Elasticity = % Change in Price Demand up by 30% Demand up by 10% = 3.0 = 0.25 Elastic Demand = Inelastic Demand = Price down by 10% Price down by 40% Price Elasticity • The percentage change in unit sales that results from a percentage change in price

  12. Price Elasticity

  13. Cross-Elasticity of Demand • When changes in price for one product affects changes in demand for a different product • Substitute products • Complementary products

  14. Psychological Issues in Pricing • Internal reference price • Set price or range of prices consumers think are reasonable • Price-quality inferences • Greater price equals greater quality • Odd-even prices • Odd prices sell more • For some products, this conveys low quality • Price lining • Develop a variety of products at different price points

  15. Pricing and Placebo • MIT study on “Veladone” • FDA approved drug used in dental surgery • Price conditions • 10 cents per pill • $2.50 per pill • Effectiveness • In low price point • 61% reported decrease in pain • In high price point • 85% reported decrease in pain

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