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BA 315 CHAPTER 9- PRICING LINDELL PHILLIP CHEW
Pricing programs are the plans' that a firm develops that
indicate what level of price should be charged in order to
implement the marketing strategy
•1. Establish the pricing objective.•2. Analyze the price elasticity of
demand.•3. Identify key competitive
factors impacting price competition.•4. Estimate the relationship
between price, changes and volume, cost, and profit changes.
•5. Evaluate the potential impact on any product line substitutes or complements.
•6. Determine if any legal limitations on pricing decisions exist or if any modifications are necessary for international
The purpose of any pricing program is to support the
marketingstrategy that has been
developed for the product or product line
• PRIMARY DEMAND BASED
• SELECTIVE DEMAND BASED
• PRODUCT LINE BASED
OBJECTIVES, OBJECTIVES, OBJECTIVES
Primary demand based objectives are selected if
the firm believes that price can be used to
increase the number of users or increase the rate
of purchase.
Selective-demand-based objectives are employed
when a firm wishes to retain its customer base or wishes to use price to neutralize the effect of competitors' prices
on market share.
Product-line-based objectives are used when a firm desires quality distinctions
among substitutes or expansion of product range among existing customers if they are
complements.
Primary-demand-based objectives are selected if the firm believes that price can be used to
increase the number of users or increase the rate of purchase.
Selective-demand-based objectives are
employed when a firm wishes to retain its customer base or wishes to use price to
neutralize the effect of competitors' prices on market share.
Product-line-based objectives are used when a
firm desires quality distinctions among substitutes or expansion of product range
among existing customers if they are complements.
•The price-elasticity of demand is measured by the percentagechange in quantity divided by the percentage change in price.Price-elasticity measures the impact of price change on total revenue.
price-elasticity of demand
A. Market elasticity indicated how total primary demand
responds to a change in the average prices of all
competitors. B. Company elasticity indicates the willingness of customers to shift brands or suppliers on the
basis of price. C. Market and company
demand-elasticity in some industries or markets is the sum
of demand from several segments.
Competitors' reactions to a price
change must be considered
regardless of whether a manager is
concerned with market or
company elasticity.
Cost factors must also be considered in making pricing
decisions.
A. With the cost-plus approach, the price is determined by taking the cost per unit and adding a dollar or percentage-target-contribution margin.
B. With the full-cost approach, all costs are
considered in setting the minimum price. C. With the variable-cost approach, the price is
set above the variable cost per unit.
Pricing programs may be selected after pricing objectives and the elasticity of demand have been
established and after the competitive situation and cost structure have been
assessed.
• Penetration pricing involves setting a price below competitive levels to stimulate an increase in demand.
• • Parity pricing involves setting a price at
or near competitive levels.• • Premium pricing involves setting a price
above competitive levels.•
Pricing decisions for one product can influence sales of other products in the firm's mix. Price
cross-elasticities are the relationships that exist when a change in the price of one product
influences the sales volume of the second product.
A. Substitutes exist when a firm markets a line of products or brands, each of which serves the needs of slightly different target segments.
1. Anchoring is the effect that a price stimulus 11 on the reference points that buyers use to assess
prices.
2. Subjective price scales are the psychological scales on which buyers code price informati
Complementary products are those that experience a sales
increase (decrease) when related products experience a price cut (increase). Managers
can take advantage of complementary relationships through price bundling and
using price leaders.