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Ch9: Pricing - Coggle Diagram

- - - - Managing for long-run profit objectives
        
        Company gives up immediate profit in exchange for achieving higher market share
        
        Products priced relatively low compared to their cost to dev but firm expects to make greater profits later cause of high market share
      - Maximizing current profit objectives
        
        For quarter or year
        
        Common cause targets can be set & performance measured quickly
        
        North American firms sometimes criticized for this short-run orientation
      - Target return objectives
        
        Occurs when firm sets its price to achieve profit goal (e.g. 20% for ROI)
        
        Usually determined by board of directors
  - - - High Price
        Firm believes what it's offering reps higher value in comparison to competing products (value being quality, brand image, benefits & unique features offering extra benefits or something as simple as instant availability)
      - Same Price
        Firm relying on some aspect other than price to position & differentiate its products in mind of customers (e.g. unique attribute, widespread availability, intensive marketing campaign)
      - Lower Price
        
        Lower prices mean lower profits on each sale, may need to be offset by larger volume sales
        
        Larger volumes result in production efficiencies & lower costs
        
        For consumers - Lower prices mean forgoing some aspect (e.g. quality or brand image)
  - - - Common types
        
        Bait & switch
        Firm offers very low price for product (bait), & when consumers purchase it, they persuaded to buy more expensive product (switch). Uses techniques like downgrading advertised item or not having it in stock
        
        Bargains conditional on other purchases
        Firm advertises "buy one, get one free" or get two for 1 price. If the first items are sold at regular price, this is legal. If price for first items inflated for offer, it's illegal
        
        Price comparisons
        Comparing to a competitor or manufacturer's price and that you are selling it much cheaper when neither the competitor nor manufacturer are actually charging the price you say they are. It's illegal
        
        Double ticketing
        When more than one price tag placed on item, it must be sold at lower price. Not illegal but law requires lower price be charged
- - - - Demand Factors - 3 other factors aside from price in estimating demand
        
        Consumer taste - Depends on many factors (demo, culture, tech). Cause consumer tastes can change quickly, updated marketing R is essential
        
        Price & availability of similar products - Laws of demand work for one's competitors
        
        Consumer income - As real consumer income (allowing for inflation) increases, demand for product increases. More disposable income allows additional purchases that aren't necessities
        
        First 2 factors influences what consumers want to buy
        
        3rd factor affects what they can buy
        
        Demand Factors
        
        Factors that determine consumers' willingness & ability to pay for goods & services
        
        Often difficult to estimate demand for new products, especially cause consumer likes & dislikes are often hard to read clearly
    - - Movement Along Demand Curve
        Assumes that non-price factors (consumer tastes, price & availability of substitutes, & consumer income) remain unchange = Number of purchases not afffected
      - Shift in Demand Curve
        Changes in consumer tastes, price, availability of substitutes, consumer income changes
    - - Elastic Demand
        
        Product where slight decrease in price results in relatively large increase in demand, or units sold
        
        Reverse is also true
        
        Slight increase in price results in large decrease in demand
        
        Products that are price sensitive often have elastic demand
        
        Major influencer is availability of substitute products - If consumers can easily find close sub for goods then product's demand tends to be elastic
      - Inelastic Demand
        
        Slight increases or decreases in price will not significantly affect demand or units sold for product
        
        Products and services considered necessities usually inelastic
        
        Consumers when they're faced with high prices for something they have to have, will seek out alternative &/or producers will see opp to dev new product
        
        When buyers less price-sensitive when product they are buying is unique or high quality & prestige (consumers think high price means more quality & demand for product will not suffer much)
      - Ability to access product info online has changed elasticity of demand for some products. Led to lower prices on products. Availability of diff suppliers online combines to create more products with elastic demand
- - - - Quantity Discounts
        Encourage customers to buy larger quantities of product, firms at all lvls in channel of distribution offer quantity discounts which are reductions in unit costs for a larger order
      - Seasonal Discounts
        Encourage buyers to stock inventory earlier than normal demand would require, often used by manufacturers
      - Trade (Functional) Discounts
        
        Reward wholesaler & retailers for marketing functions they will perform in future, manufacturer gives trade, or function discounts
        
        Reductions off list or base price offered to resellers in channel of distribution on basis of where they are in the channel & the marketing activities they are expected to perform in future
        
        Traditional trade discounts have been established in various product lines. Although manufacturer may suggest trade discounts, seller free to alter discount schedule depending on competitive situation
      - Cash Discounts
        Encourage retailers to pay bills quickly, manufacturers offer cash discounts
    - - Trade-in Allowances
        
        Price reduction given when used product is part of payment on new product
        
        Effective way to lower price a buyer has to pay without formally reducing list price
      - Promotional Allowances
        
        Sellers in channel of distribution can qualify for promotional allowances for undertaking certain advertising or selling activities to promote product
        
        Various types of allowances include actual cost payment or extra amount of free goods
        
        Frequently portion of these savings is passed on to the consumer by retailers
    - - FOB Origin Pricing
        
        "Free on board" some vehicle at some location
        
        Seller pays cost of loading product onto vehicle that is used
        
        Involves seller's naming location of loading as seller's factory or warehouse
        
        Title & ownership to goods passes to buyer at point of loading, so buyer becomes responsible for picking specific mode of transportation, for all transportation costs, for subsequent handling of product
        
        Buyers furthest from seller face big disadvantage of paying higher transportation costs
      - Uniform Delivered Pricing
        
        Price seller quotes includes all transportation costs
        
        Quoted in contract as FOB buyer's location, & seller selects mode of transportation, pays freight charges, & is responsible for any damage that may occur cause seller retains title to good till delivered to buyer