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

The framework for selecting pricing programs

includes six elements:

1,2

,3,4,5,6

•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

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

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.

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.

 •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.

price-elasticity of demand

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.

 

Competitors' reactions to a price

change must be considered

regardless of whether a manager is

concerned with market or

company elasticity.

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.

 B. With the full-cost approach, all costs are

considered in setting the minimum price. C. With the variable-cost approach, the price is

set above the variable cost per unit. 

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 been

assessed. 

• Penetration pricing involves setting a price below competitive levels to stimulate an increase in demand.

•  • Parity pricing involves setting a price at

or near competitive levels.•  •  Premium pricing involves setting a price

above competitive levels.•  

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

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.  

LPC SAYS, “MOLTRIN AND RUFEN WILL BE ON EXAM

TWO”• SO WILL SOUTHWEST AIRLINES

• ARC ELASTICITY!!!!

The EndLPC1@umsl.edu