BA 315 CHAPTER 9- PRICING LINDELL PHILLIP CHEW

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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

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The framework for selecting pricing programs
includes six elements
1,2
,3,4,5,6
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• 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

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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

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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.
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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.
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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.
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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.
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price-elasticity of demand

• 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.

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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. 
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Competitors' reactions to a price change must be
consideredregardless of whether a manager is
concerned with market orcompany elasticity.
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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.
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• B. With the full-cost approach, all costs are
  considered in setting the minimum price.
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• C. With the variable-cost approach, the price is
  set above the variable cost per unit.
•  

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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 beenassessed. 

• Penetration pricing involves setting a price
  below competitive levels to stimulate an increase
  in demand.
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• Parity pricing involves setting a price at or
  near competitive levels.
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•  Premium pricing involves setting a price above
  competitive levels.
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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
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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.  
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LPC SAYS, MOLTRIN AND RUFEN WILL BE ON EXAM
TWO

• SO WILL SOUTHWEST AIRLINES
• ARC ELASTICITY!!!!

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The EndLPC1_at_umsl.edu