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Lecture Notes for Price
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Lecture Notes for Price- USC Marshall
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PricingPrice= resources given up/ goods received
Ways to change market price:
1. Changing the sticker price (dollar amt) charged
2. Changing the quantity of material recd (instead of changing price of coke, make it
smaller can)
3. Change quality- dilute products, cut out expensive ingredients
4. Change terms of sale- firms may begin charging for prev free delivery
Downsizing: rather than increasing price, firms will reduce the quantity of the product given,
thereby increasing price
Terms: elements of the deal presented/ what is in an offer
Five C’s of pricing:
1. Company objectives- firms like to see a certain rate of return
a. Profit maximization
2. Competition- firm can charge what competitors are charging (hope to avoid price wars)
3. Customers- differ in price sensitivity, customer perceived value
a. Some will pay higher for a premium/prestige product
b. Others only want the cheapest price
4. Channel members- authorized sellers, retailers
5. Costs-
a. Variable and fixed costs
b. Break even quantity
c. Returns by product category and customer values
I. Company Objectives
A. Target profit pricing, premium pricing, profit max
1. Firms set price lower than what is profit max in order to gain market share
2. But it is difficult to raise price after
B. Profit max price exists and above this, sales are hard
1. Below this, margin is too small and profits are low
II. Customers
A. Customer perceived value- how much will the customer pay for it
III. Costs
A. Firm has to charge more than cost of production across assortments
B. Cost-plus strategy where it marks up COP by a fixed number if inflexible
C. Firms even make losses on some products to sell others
Breakeven quantity= fixed cost/ contribution per unit
Contribution per unit= price - var cost
D. Cont per unit is difference between selling price and var cost
, 1. When TC meets TR, they cancel each other. After that, TR> TC---> profit
E. If a segment is able to afford high priced products, we can examine the extent to
which the market is able to pay a premium price.
IV. Competition:
A. Competitive parity- firm chooses to price products close to competitors
B. Status quo pricing- firm only changes prices in response to competitors
1. Small follower firms take this approach
a) Scared that lowering price leads to retaliation by larger brands
C. Market structure:
1. Monopoly
2. Oligopolistic
3. monopolistic competition
4. Pure competition
In concentrated markets, price competition is intense
V. Channel members
1. Authorized resellers- manufacturers select a few retailers
2. Gray markets- unauthorized sellers get access to products, and then
authorized sellers secretly sell and get discounts
Views of consumer and price response
Economists Marketers
Assume that consumers have perfect info Assumed that consumers are unaware of
about most info
- Quality of all brands - They think that higher price= good
- Price charged by each retailer quality
- Imperfect memories of prices
previously paid
- Consumers buy large packages
because they think it is discounted
Equilibrium- where supply and demand curves meet
Demand curves- slope down, higher price, lesser units sold
Supply- slopes up, higher price, more units sold
1. Demand increase if some products become more popular
2. DD decrease if substitutes are available
3. Cost of prodn affects supply
- Quantity supplied- qty supplied by sellers at a given price point
- Qty dmd- qty demanded by buyers at a given price point
Price discrimination
Explicit Implicit
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