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.last
updated 2002 Aug 6th
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for Section TT | Tuesday
morning class |
There will be no class on
Thursday July 11th
- read in the textbook pages 456-472 |
for Section SS | Thursday
afternoon class |
There will be no class on
Tuesday July 9th
- read in the textbook pages 456-472 |
Chpt 17
Pricing Objectives |
Chpt 17
Pricing Objectives |
page 456
"Price is one of the four major marketing variables that a marketing manager controls" .
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Chpt 17
Pricing Objectives |
The subject of 4X
or Foreign Exchange rates can be very complicated and its effect
in pricing is substantial.
Prof. Richardson teaches another courses in which this topic is discussed in detail. |
"Most
price structures are built around list prices" p. 467
- how firms set prices is what we talk about in Chpt 18 |
Chpt 17
Pricing Objectives |
Skimming Price - good example
is DVD's priced in 1999 at $400
Penetration Pricing p. 464
Introductory Price Dealing "The price of money may effect the price level" Discount Pricing p. 468
Allowances
- if they put on an advertising campaign, you will lower your wholesale price to them because it helps your promotion too- trade-in allowance Geographic Pricing
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2/10 - net 30 - page 469
text
in a business to business (B2B) situation it is common to have to extend credit to customers who are buying parts, materials and supplies. 2 is the % discount 10 is the number of days 30 is the maximum number of days in which you HAVE to pay 2/10 net 30 means if you may before 10 days, you get a 2% discount 5/10 net 60
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Rebates p. 471
Many rebate programs are
in response to the Competitive Environment
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for
Section
TT |
Tuesday
morning class July 30th |
There will be
no class on Thursday Aug 1
- read in the textbook Chpt 18 + check lower on this page |
for Section SS | Thursday
afternoon class August 1st |
There will be no class on
Tuesday July 30th
read in the textbook Chpt 18 + check lower on this page |
Chpt 18
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Chpt 18
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"More managers
are realizing that they should set prices by evaluating the effect of a
price decision not only on the profit margin for a given item but also
on demand..."
p. 482
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Chpt 18
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There are two
ways to set list prices (p. 482)
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Chpt 18
Markups |
"Markup percent
is based on selling price"
p. 483 In the clothing industry it is usually 100% - this means if your calculated mfg. cost price of a garment is $20 - it will wholesale at $40, the retailer will mark it up to $80, or even $90 depending on the category. "Mark-up Chain"
"High markups don't always
mean big profits" p. 484
It is also important to note that the level of the mark-up depends on whether the product is a consumer product/service or an industrial product/service - BECAUSE,,,, consumer products/services often have more money spent on promotional expenses - therefore the need to recover this in a higher mark-up. level of the mark-up depends on whether the product is:
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Chpt 18
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Stockturn rate
(p. 485)
If you spend a lot of money to acquire inventory - it will cost you
One of the best things you can do is "turn over" your stock quickly. Once or twice a year is bad, four or five times a year is good. Cash flow is sometimes more important that an absolute profit. When you turn over the stock, you get cash flow. |
Chpt 18
Costs |
"There are three
kinds of total costs"
p. 487
- rent, utilities, agent commission, insurance - things that do not change no matter how much you produce - material, supplies, component parts, wages and salaries, shipping - things that increase, when you increase production - the sum of Total Cost + Variable Cost "There are Three Kinds of Average Cost" p. 487
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Chpt 18
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Target Return
Pricing (p. 490)
Text says this has become popular in recent years. Part of the reason for this is that the producer has to provide some of the money from profits to the financiers who ot them going - so the reason for a specific target is so that the objectives of the Business Plan can be met. |
"One important disadvantage of the break-even analysis is that it requires estimating a single per-unit variable cost, and a single per-unit price or revenue, for the entire business. That is a hard concept to estimate in a normal business that has a collection of products or services to sell." |
So, assume we have a product we want to sell for $10.00 and we want to sell 1,000 of them. For this example our total fixed costs are going to be $7,700 and our total variable costs are $4.50/unit. Our formula would look like this:
P=1,000($10.00-$4.50)-$7,700=$5,500-$7,700= -$2,200
Instead of making money we have just lost $2,200. At break even the $2,200 number should be $0. We can't make money at 1000 units so how many must we really sell to break even? We know our fixed costs (F) are $7700, and the price (p) is still $10.00 and our variable costs (V) are $4.50/unit we do this: (p) price minus (V) variable costs divided into (F) fixed costs or $10.00 - $4.50 = $5.50 divided into $7700 = 1400 units. If we maintain our price and expenses we need to sell 1400 units of our product to break even. If we raise our price or reduce expenses we can sell less. - this explanation comes from Eagle Marketing, Bozeman, Montana |
Chpt 18
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Finding the
most Profitable Price and Quantity to Produce
p. 494 A profit range is helpful
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Chpt 18
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DEMAND-ORIENTED
APPROACHES FOR SETTING PRICES p. 497 - 502
· Evaluating the customer's price sensitivity · Value in use pricing--how much will the customer save?
VALUE IN USE PRICING--setting prices that will capture some of what customers
will save by substituting the firm's product for the
· Auctions are coming
on-line fast
· Bait pricing--offer a steal, but sell under protest
BAIT PRICING--setting some very low prices to attract customers--but trying
to sell more expensive models or brands once the customer is in the
store.
· Psychological pricing--some
prices just seem right
· Price lining--a
few prices cover the field
·· Prestige pricing indicates quality
PRESTIGE PRICING--setting a rather high price to suggest high quality or
high status.
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