The Five Cs of Pricing
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The overall sacrifice (Money, Time & Energy) a consumer is willing to make to acquire a specific product or service.
The Five Cs of Pricing
3 Levels of competition:
Oligopolistic Competition - Only a few firms dominate
- Price changes in reaction to 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.
- Costs, that vary with production volume. (labor, materials, etc.)
- Costs that remain essentially at the same level.
- 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
Customer Demand = Price elasticity of demand
Measures how changes in a price affect the quantity of product demanded.
Factors influencing Elasticity of Demand
- The change in the quantity of a product demanded by consumers due to a change in their income.
- Consumers’ ability to substitute other products for the focal brand.
- The greater the availability of substitute products, the higher the price elasticity of demand.
- The percentage change in demand for product A that occures in response to a percentage change in price of Product B.
- Complementary Products
Target Profit Pricing
- Firms use price to stimulate a certain level of sales at a certain profit per unit. Particular Profit Goal.
- Identify the price at which its profits are maximized.
Target Return Pricing
- pricing strategies to produce a specific return on their investment.
- Set Prices very low to generate new sales and take sales away from Competitors, even if Profits suffer.
Competitive Parity: set prices that are similar to those of their major competitors.
Status Quo Pricing, changes prices only to meet those of competition.
- Premium Pricing: Increase Value by focosing on customer satisfaction and setting prices to match consumer expectations.
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