Internal Factors that Affect Pricing Decisions - ANS 1. Marketing Objectives
2. Marketing Mix Strategy
3. Costs
Marketing Objectives - ANS -maximize profit
-gain market share
-infer a level of quality
-survive
Marketing Mix Strategy - ANS price needs to be consistent with other 3P's (...
Price Elasticity - ANS How much demand for a product will change with a change in
price
e=(% change in quantity demanded of Good 'A') / (% change in price of Good 'A')
Elastic - ANS consumers buy more or less of a product when the price changes
Inelastic - ANS increase or decrease in price does not affect demand
unitary elasticity - ANS An increase in sales exactly offsets a decrease in prices, and
revenue is unchanged
Stages for Establishing Prices - ANS 1. Develop pricing objectives
2. Assess target market's evaluation of price
3. Evaluate competitors' prices
4. Select a basis for pricing
, 5. Select a pricing strategy
6. Determine a specific price
1. Develop pricing objectives - ANS Profit- Identify price and cost levels that allow the
firm to maximize profit per product
Status Quo- Identify price levels similar to competitor average price
Market Share- Adjust price levels so that the firm can maintain or increase sales relative
to competitors' sales
2. assessing the target market's evaluation of price: importance of price - ANS -Type of
Product
-Type of Target Market
-Purchase Situation
3. evaluating competitors' prices - ANS Sources of Competitors' Pricing Information
-Comparative shoppers
Importance of Knowing Competitors'Prices
-Helps determine how important price will be to customers
-Helps marketers in setting competitive prices for their products
Customer View of Pricing and Marketing
-Pricing above competition
-Pricing below competition
4. selecting a basis for pricing - ANS Cost-plus pricing: adding a specified dollar
amount to the seller's costs
-Markup: Adding to the price of the product a predetermined percentage of the variable
cost
-Margin: Adding to the price of the product a predetermined percentage of the total price
cost-based pricing: break-even pricing - ANS the break-even point is where a company
produces the same amount of revenues as expenses
selecting a basis for pricing: demand - ANS Demand Based Pricing: Customers pay a
higher price when demanded for the product is strong and a lower price when demand
is weak
Also known as Flexible or Variable pricing
- Off-peak cheaper prices
- Different segments pay different rates
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