chapter 14: pricing concepts for establishing value Flashcards
five C’s of pricing
competition, costs, company objectives, customers, channel members
1st c: company objectives
profit oriented, sales oriented, competitor oriented, customer oriented
2nd c: customers
demand increases as price decreases
shape of the demand curve
not all are downward sloping
prestigious products or services have sloping curves
price elasticity
price elasticity of demand = % of change in quantity demanded/% change in price
elastic (price sensitive)
inelastic (price insensitive)
consumers are less sensitive to price increases for necessities
factors affecting price elasticity
cross-price elasticity, income effect, substitution effect
3rd c: cost
COSTS
variable costs: vary with production volume
fixed costs: unaffected by production volume
total cost: sum of variable and fixed costs
REVENUE
revenue equation: price x quantity or unit volume
profit: total revenue - total cost
unit contribution margin: price - unit variable cost
break even analysis
total variable cost = variable cost per unit x quantity
total cost = fixed cost + total variable cost
total variable = price x quantity
break-even points (units) = fixed costs/contribution per unit
4th c: competition
monopoly: one firm controls the market
oligopoly: a handful of firms control the market
monopolistic competition: many firms selling differentiated products at different prices
pure competition: many firms selling commodities where price is set by market
5th c: channel members
manufacturers, wholesalers, and retailers can have different perspectives on pricing strategies
(walmart, target, amazon)
e-commerce: third-party marketplace sellers
pricing strategy
everyday low pricing (EDLP), high/low pricing
new product pricing strategy
market penetration, price skimming
legal and ethical aspects
deceptive or illegal price advertising, predatory pricing, price discrimination, price fixing
