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Price, Value
Ex price- Consumer will have to drive additional 20 miles. Decides time and travel costs are not
worth the savings, judges overall cost of buying product to be lower.
Price is the overall sacrifice consumer is willing to make to aquire good. Can include money to be
paid to seller to aquire item, or value of time necessary to get item, travel costs, taxes, shipping
costs.
Value- relationship between the products benefits and consumers costs.
Consumers judge benefits that product delivers against the sacrifice necessary to obtin it, then
make purchasing decision.
Key to successful pricing is to match p/s with consumers value perceptions
In this equation price provides info. About quality of p/s
Price set to low may signal poor quality, performance or other things
Price is only part of MM that does not generate costs, instead generates revenue.
100% markup = keystonning
5 cs
1) Company objectives
Goals>pricing strategy pricing of p/s should help reach overall goals
Reflect how firm intends to grow.
1.1) Profit orientation- focusing on target profit pricing, maximizing profits, target return pricing.
a) Target profit pricing when firms have a particular profit goal as their overidding concern,
firms use price to stimulate a certain level of sales at a certain profit per unit.
b) Maximizing profits economic theory. mathmatical model captures all factors required to
explain and predict sales and profits should identify the price where profits are maximized.
Problem is that gathering data on factors and coming up with accurate model is difficult.
c) Target return pricing pricing strategies designed to produce a specific return on investment
usually % of sales. When firms are less concerned with absolute level of profits and more
interested in the rate which profits are generated relative to investments.
1.2) Sales orientation when firms set prices believe increasing sales will help firm more than
increasing profits. When firm wants to get consumers familiar with new product. Fims may be
concerned about overall market share rather than dollar sales because they believe market share
shows their success better than sales alone. Does not always mean setting prices low, rarely is
the lowest pricced item the domiant brand. Value is not over expressed in sales oriented
strategies, it is at least implicit cause for sales to increase consumers must see greater value.
1.3) Competitor Orientation- when firms strategize according to the premise that they should
measure themselves against competition.
a) competitive parity set prices that are similar to competitors
b) Status quo pricing changes prices onlu to meet those of competition.
Value is only implicitly considered in competitor oriented strategies, but in the sense that
competitors may be using value as part of pricing strategies, copying their strategy may provide
value.
1.4) Consumer oriented- when firm sets its pricing strategy based on how it can add value to its
p/s. May offer high priced state of the art p/s in anticipation of limited sales. Designed to
enhance companies rep. and image therby increase the companies value in concumers minds.
Setting prices with close eye to how consumers develop perceptions of value can be the most
effective price strategy, especially with advertising and distribution strategies.2 nd step look
forward toward consumer demand to lay foundation
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