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Chapter 14 Definitions and TXT Q
Terms in this set (21)
The overall sacrifice a consumer is willing to make-money, time, energy -to acquire a specific product or service
Because it is the only element of the marketing mix that does not generate costs, but instead generates revenue, it is important in its own right
-each other element in the marketing mix may be perfect, but with the wrong price, sales and thus revenue will not accrue
EX: A consumer realizes to save money on a particular item, she must drive an additional 20 miles. She may determine that her time and travel costs are not worth the savings. So even though the price is higher at the nearby store, she judges the overall cost of buying the product close by to be lower.
Successful pricing strategies are built around the five critical components (the 5 C's) of pricing:
1. Company Objectives
5. Channel Members
These goals should spill down the the pricing strategy, such that the pricing of a company's products and services should support and allow the firm to reach its overall goals.
EX: A firm with a primary goal of a very high sales growth will likely have a different pricing strategy than will a firm with the goal of being a quality leader.
When companies embrace these, they seem to fit with where management thinks the firm needs to be successful, in whatever way it defines success; usually reflect how the firm intends to grow.
EX: Grow by increasing profits, increasing sales, decreasing competition, or build customer satisfaction?
A company objective that can be implemented by focusing on
-Target Profit Pricing
-Target Return Pricing
Target Profit Pricing
A pricing strategy implemented by firms when the have a particular profit goal as their overriding concern; use price to stimulate a certain level of sales at a certain profit per unit.
A profit strategy that relies primarily on economic theory.
If a firm can accurately specify a mathematical model that captures all the factors required to explain and predict sales and profits, it should be able to identify the price at which its profits are maximized.
Target Return Pricing
A pricing strategy implemented by firms less concerned with the absolute level of profits and more interested in the rate at which their profits are generated relative to their investments; designed to produce a specific return on investment, usually expressed as a percentage of sales.
a company objective based on the belief that increasing sales will help the firm more than will increasing profits
EX: A new health club might focus on unit sales, dollar sales, or market share and therefore be willing to set a lower membership fee and accept less profit at first to focus on and generate more unit sales.
IN CONTRAST a high-end jewelry store might focus on dollar sales and maintain higher prices. The jewelry store relies on its prestige image, as well as the image of the suppliers to provoke sales. Even though it sells fewer units, it can still generate high dollar sales levels.
Why may a firm set low prices?
-To discourage new firms from entering the market
-Encourage current firms to leave the market
-Take the market share away from competitors (all to gain overall market share)
EX: Airlines with airfares and amenities
a competitor-based pricing method by which the firm deliberately prices a product above the prices set for competing products to capture those consumers who always shop for the best or for whom price does not matter.
Thus comanies can gain market share by offering high-quality product at a price that is perceived to be fair by its target market as long as they use effective communication and distribution methods to generate high value perceptions among consumers.
Adopting a market share objective does not always imply setting low prices. Rarely is the lowest price offering the dominant brand in a given market
EX: Heinz Ketchup, Philadelphia Cream Cheese, Crest Toothpaste, Nike.
A company objective based on the premise that the firm should measure itself primarily against its competition.
a firm's strategy of setting prices that are similar to those of major competitors
Status Quo Pricing
a competitor-oriented strategy in which a firm changes prices only to meet those of competition
EX: One one airlines increase or decrease their fares, other airlines follow.
Different Company Objectives
1. Profit Oriented
2. Sales Oriented
3. Competitor Oriented
4. Customer Oriented
Profit Oriented EX
Institute a company wide policy that all products must provide for at least 18 percent profit margin to reach a particular profit goal for the firm
Sales Oriented EX:
Set prices very low to generate new sales and take sales away from competitors, even if profits suffer.
Competitor Oriented EX
To discourage more competitors from entering the market, set prices very low
Consumer Oriented EX
Target a market segment of consumers who highly value a particular product benefit and set prices relatively high (referred to as premium pricing)
a company objective based on the premise that the firm should measure itself primarily according to whether it meets its customers' needs; Setting a pricing strategy based on how it can add value to its products or services.
Customers want value, and PRICE is half of that equation
EX: Carmax promising a "no haggle" promise structure by providing additional promises and potential value to car buyers by making the process simple and easy.
shows how many units of a product or service consumers will demand during a specific period at different prices
Of course, any demand curve relating demand to price assumes that everything else remains unchanged. For the sake of expediency, marketers creating a demand curve assume the firm
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