Aspects regarding price competition, product differentiation and advertising. Know or anticipate present and future prices of competitors and potential competitors today and in the future. Three different objectives which relate to profit.
Managing for long-run profits 2. Maximizing current profit objective short term: quarter or annually 3. Hope that increase in sales will increase market share and profit. Can be easily managed for marketing managers over ROI.
Quantity produced or sold. Matching capacity of the firms production to sales. Counter productive if increase in unit volume is due to price cutting which drives firms profitability. Forgo higher profit and recogniz e obligation to customer and society in general. Medtronics heart pacemaker. Flashcards FlashCards Essays. Create Flashcards. Share This Flashcard Set Close.
Please sign in to share these flashcards. We'll bring you back here when you are done. Sign in Don't have an account? Set the Language Close. Pricing Pricing Pricing. Add to Folders Close. Please sign in to add to folders. Upgrade to Cram Premium Close. Upgrade Cancel. Cost Shifting In Health Care A study on cost shifting by hospitals reported that hospitals in less competitive markets raise prices to private insurers when faced with shortfalls between The Importance Of Marketing Strategy Price is defined as the monetary value of a product or a service.
Net Present Value Essay Besides, there are many advantages of net present value method. Calculate your costs 2. Determine your pricing objectives 3. Determine your pricing strategy 4. Legislation and regulations 5. Research Discounts. What is pricing? The following steps can help you through the process of pricing your products.
Calculate your costs. Determine your pricing objectives. Positioning Positioning can help you establish your products or services in the market. Remaining competitive For many businesses, being price-competitive is important, whether as a price leader or responding to the competition. Increasing demand Using price to increase demand in new or existing products or services can be a good objective for establishing customers or boosting lagging sales.
Determine your pricing strategy. There are a number of pricing strategies you can employ when setting your price, including strategies based on: costs competition perceived value product.
Cost-based pricing strategies Cost-plus pricing : a strategy that adds a small margin or mark-up to the costs of producing and distributing the product or service. Care should be taken when calculating your price to ensure that all relevant costs such as cost of goods sold, fixed costs including Goods and Services Tax GST and other taxes are factored in. If your calculations are accurate this strategy can keep your price competitive while ensuring that you still make a profit.
Charge per hour : this strategy is often used by service-based businesses and independent contractors. The 'per hour' method calculates all the relevant costs of a business at an hourly rate.
When using this method it's important to factor in all your business costs and not overlook taxes, a wage for yourself, superannuation and leave entitlements. Competition-based pricing strategies Going rate pricing : this strategy is a safe way for small businesses to remain competitive without eating into profits.
The strategy means you price your products and services close to the market price leader. The value is determined through market testing and a price is set based on this value.
For example, sometimes customers will pay more if it saves them a lot of time. The price reflects this saving.
Premium pricing : this strategy reflects the prestige, luxury or exclusive value of the products or services you provide. Typically, at a premium price customers have high expectations of quality, performance and service.
Once this point is reached, the prices are increased to normal pricing levels. Skimming pricing : this strategy sets a high initial price which aims to excite audiences who desire products or services that are in high demand and are highly valued. Once the required profits are made, the price is then lowered for a wider market. Loss leader pricing : this strategy aims to attract customers by offering a product or service at below cost. The strategy hopes that customers will also purchase other products or services with a higher profit margin.
Legislation and regulations. Predatory pricing : this pricing occurs when a business with significant market share reduces their prices for the purposes of eliminating or damaging smaller competitors. Predatory pricing is anti-competitive. Price fixing : this practice is illegal in Australia. Price fixing is where 2 or more competitors agree on setting prices or agree to charge certain fees. Parallel pricing : this practice follows the pricing practices of other businesses, mainly competitors.
Multiple pricing : this is typically done in error, when a good is advertised with more than one displayed price. Under consumer law, a business must either sell the goods at the lower price, or withdraw the good from sale until the price is corrected. This does not apply when advertisements state that prices vary in different regions a price is hidden by another price a price is displayed in an overseas currency or unit price.
Unit pricing code : this regulation ensures that retailers calculate a standard measurement unit price such as litres or grams. Unit pricing allows customers to compare the price and value of similar types of products. There is a cost associated with changing or updating prices. For example, retailers must update all the pricing on the shelves when they change prices. Another example would be restaurants: they must print new menus when they update their pricing.
Due to the associated costs of printing new catalogs, research indicates that most firms change the price for their products once a year. One exception would be the online retailers.
There is no printing costs for price changes online. It can take just a minute to activate a price change for online sellers. There are four types of competitive markets: monopoly, oligopoly, monopolistic competition, and pure or perfect competition. We previously covered these four market structures as a part of competitive forces with details and examples. The figure below provides a simple summary including extent of price competition, product differentiation, and advertising.
One highlight from the above figure would be related to the extent of advertising. There is not much need for advertising in pure competition due to the fact that the products offered in the market are identical. Availability of products can be advertised but there is no point of advertisement to emphasize how the product is superior in the case of pure competition.
Pure monopolistic markets do not require much advertisement either. That is due to fact that monopolists sell products with no close substitutes. Consumers have no other choice if they are interested in such a product sold by a monopolist. Of course it is possible to advertise to raise awareness, if the product is not a necessity.
In oligopolistic markets, products can be undifferentiated such as aluminum, or differentiated such as jetliners.
For that reason, some informative advertising is used. Firms avoid head-to-head price competition in oligopolistic markets in order to maximize their profits collectively. The need for advertising arises in monopolistically competitive markets. Price is one of the marketing mix elements, and firms have control over price in some markets. For example, a monopolist is a price setter and has full control over pricing unless it is regulated by the government.
In perfectly competitive markets, firms are price takers and have no control over the market price. In oligopolies, firms avoid competing on price since it reduces their collective profits. As the firm sets its price, it is meaningful to compare the features of the product to the competitive products in order to justify a higher than or lower than market price.
Step 1 also includes identifying the pricing objectives. Pricing objectives are the expectations that specify the role of price in an organization's marketing plan. Businesses might choose to follow one of many pricing objectives including: profit, sales revenue, market share, unit volume, survival, and social responsibility.
Firms might choose to maximize their current profits or long-run profits with their pricing. Maximizing their current profit objective, such as during this quarter or year, is common due to the fact that performance is evaluated and the results are realized quickly. The downside of short-run profit orientation, is that firms might sacrifice quality in order to achieve immediate profit.
When firms choose to follow pricing for optimum long-run profits, as is the case for Japanese firms producing cars or computers, they are willing to forgo immediate profit to develop quality products that will dominate the markets in the future. Firms might follow a target return objective as well. Sales revenue equals price times quantity sold. Firms might follow a pricing objective that will help them increase their sales revenue.
Higher sales revenue does not imply higher profits, since cost is also a part of profits. However, an increase in sales revenue would lead to an increase in market share.
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