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Price

Definition

The overall sacrifice (Money, Time & Energy) a consumer is willing to make to acquire a specific product or service.

 

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The Five Cs of Pricing 

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Competition

Costs

Company Objectives

Customers

Channel Members

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Competition

3 Levels of competition:

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Oligopolistic Competition - Only a few firms dominate

-  Price changes in reaction to competition.

Monopolistic Competition

Many firms competing for customers in a given market but their products are differentiated.

Pure Competition - Different companies sell products that consumers perceive as substitutable

- The price usually is set according to supply and demand.

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Costs

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Variable Costs 

- Costs, that vary with production volume. (labor, materials, etc.)

Fixed Costs

- Costs that remain essentially at the same level. 

Total Cost 

All variable and fixed costs Combined

Break Even Analysis

Contribution per unit = price - variable cost per unit. 

Break Even Point (Units) = Fixed Costs : Contribution per Unit

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Customers

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Customer Demand = Price elasticity of demand 

Measures how changes in a price affect the quantity of product demanded.

Factors influencing Elasticity of Demand

Income Effect

The change in the quantity of a product demanded by consumers due to a change in their income.

Substitution Effect 

- Consumers’ ability to substitute other products for the focal brand. 

- The greater the availability of substitute products, the higher the price elasticity of demand. 

Cross-Price Elasticity 

- The percentage change in demand for product A that occures in response to a percentage change in price of Product B.

- Complementary Products

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Channel Members

Manufacturers (Hersteller)

Wholesalers (Großhändler)

Retailers (Einzelhandel)

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Company Objectives

Profit Orientation

Target Profit Pricing

- Firms use price to stimulate a certain level of sales at a certain profit per unit. Particular Profit Goal.

Maximizing Profits

- Identify the price at which its profits are maximized. 

Target Return Pricing 

- pricing strategies to produce a specific return on their investment.

Sales Orientation

- Set Prices very low to generate new sales and take sales away from Competitors, even if Profits suffer.

Competitor Orientation

Competitive Parity: set prices that are similar to those of their major competitors. 

Status Quo Pricingchanges prices only to meet those of competition. 

Customer Orientation

Premium Pricing: Increase Value by focosing on customer satisfaction and setting prices to match consumer expectations.