marketing_midterm

• Price


  The money, good or service exchanged for the ownership or use of a good or service
• Pricing


  Those activities involved in the determination of the price at which products that will be offered for sale considering the various objectives of the firm
• What are the three pricing objectives

  • Profit-oriented objectives
  • Sales-oriented objectives
  • Status quo-oriented objectives
• Profit-oriented objectives


  Pricing objectives that call for profit generation, either to achieve a target return on investment/sales or to maximize profit
• Target return objective


  Pricing objective requiring a certain level of profit, often stated as a percentage of sales or capital investment
• Profit maximization objective


  Pricing objective of seeking as much profit as possible, by increasing quantity sold or profit margin
• Sales-oriented objectives


  Pricing objectives that aim to provide higher sales volume, either by increasing sales volume or maintaining/increasing market share
• Increasing sales volume


  Sales-oriented objective requiring an increase in sales volume for a given period
• Status quo-oriented objectives


  Pricing objectives that require maintaining the same prices, due to being satisfied with current market share and profits, to stabilize prices, meet competition, or avoid competition
• What are the pricing procedure

  1. Determining realistic range of choice

  2. Selecting a pricing strategy

  3. Evaluating the economic feasibility

  4. Setting the price
• Determining realistic range of choice


  The first step in pricing, determining the realistic range of prices from which a final choice will be made
• Selecting a pricing strategy


  The decision-maker adapts either a market skimming strategy or a penetration strategy
• Market skimming


  Pricing strategy that sets the price at the upper limit of the realistic price range
• Penetration strategy


  Pricing strategy that sets the price at the bottom of the realistic price range
• Setting the price


  The final step in the pricing procedure, where the firm sets the price of the products
• Cost plus pricing


  Pricing method under the cost based approach that adds a percentage of cost on top of the total cost to constitute the profit margin
• Direct costs = materials + labor
• Overhead costs = a share of fixed indirect costs
• Profit margin = a fair amount of return
• Cost plus pricing calculation

  1. Price = $25 + $30 = $55 (DC: 25, OC: 900)

  2. Price = $25 + $30 = $55 ($55 times 0.40)

  3. Price = $55 + $22

  4. Price = $77
• Cost plus pricing calculation for Lily's soap business

  1. Price = $5 + $3.75 = $8.75

  2. Price = $8.75 + ($8.755 (x0.35) = $3.06

  3. Price = $8.75 = $3.06

  4. Price = $11.81
• Target rate of return pricing


  Pricing approach that establishes the level of profits that will yield a satisfactory return, by identifying the desired percent return and using it to determine feasible price and marketing mix combinations
• Price


  Direct costs + Overhead costs + Profit margin
• Price = $5 + $3.75 = $8.75
• Price = $8.75 + ($8.755 (x0.35) = $3.06
• Price = $8.75 = $3.06
• Price = $11.81
• Direct Costs


  • High-quality ingredients: $3 per soap bar
  • Labor for crafting one soap bar: $2
  • Total direct costs: $3 + $2 = $5 per soap bar
• Overhead Costs


  • Workshop rent: $400 per month
  • Salaries for part-time assistance: $300 per month
  • Packaging and labeling: $50 per month
  • Total monthly overhead costs: $400 + $300 + $50 = $750
• Assuming she produces 200 soap bars in a month, the overhead cost per soap bar would be $750 / 200 = $3.75 per soap bar
• Target Rate of Return Pricing procedure

  1. to identify what percent is a satisfactory return

  2. to use the standard return in determining whether a particular price and marketing mix combination is feasible
• Buyer Based Approach


  The buyer based approach of pricing deals with consumer perceptions or behavior as bases for determining the selling price of a product or service
• Perceived Value Pricing


  This method establishes the price for a product based on the buyer's perception of the value of the product or service
• Price-Quality Relationship Pricing


  This approach hinges on the observation that consumers associate high price with high quality and lowquality with low price
• Loss-Leader pricing


  Refers to the practice of setting low prices on selected product which will result in the generation of less profits, but with the objective of increasing the sales volume of other products sold by tghe company
• Odd-Numbered Pricing


  This refers to the practice of selling merchandise at a limited number of predetermined price levels
• Price Lining Pricing


  This method refers to the practice of selling merchandise at a limited number of predetermined price levels
• Competitive Based Approach


  • Going-Rate Pricing
  • Sealed Bid Pricing
• Going-Rate Pricing


  Under this pricing method, the firm adapts a price based on the competitor's prices
• Sealed Bid Pricing


  In sealed bid pricing, the firm sets its price which is thought to be a little lower than the competitor's