Price Administration and Strategy

1. Price Administration and Strategy

2. What is Price? • It is what you are willing to exchange for the product service in the marketplace. • can be money • could be a barter • Most marketers generally agree that price is the most important of the P’s. • Not previously a concern in HCM

3. Role with the Consumer • If have incomplete information - consumers perceive a direct relationship between p and q. • In other words, the higher the p, the higher the perceived quality

4. Names of “Price” • “Fees” • Price • Tuition • Charges • All reflect what will be given up by the consumer in exchange for the product, good, service

5. Types of Pricing • List Price • is the base price or initial offering of a product • Allocation Role of Price • role in helping consumers decide how to derive the greatest expected utility from their buying power • Perceived Value Pricing • establishment of prices that are intended to enhance the utility that customers will perceive in the products offered

6. Regulation and Pricing • Area of marketing that is highly regulated • Discriminatory pricing is unlawful when their effect may be to injure to substantially reduce competition • Robinson-Patman Act

7. Unfair Trade Laws • State laws requiring sellers to maintain minimum prices for comparable merchandise • Fair Trade Laws • permit manufacturers to stipulate minimum retail prices for products and to require retailers to sign abiding contracts

8. Pricing Objectives • Should be comparable with the marketing objectives • Profit oriented • Sales oriented • Status quo • Competitive

9. Role Of Government and Insurance • The government offers a set of “prices” to health care providers in the form of VA and medicare reimbursement schedules • These fee schedules servce as the foundation for commercial insurance plans and their proposed contract prices

10. Economic Role In Pricing • Pricing requires that the firm attempt to estimate total demand for the good. • 1) determine the price the market expects • 2) estimate the sales volume at different prices • Expected Prices - what the consumer consciously or subconsciously value the product at - what the product is worth • Develop a demand curve

11. Demand • The quantity of a product that will be sold in the market at various prices for a particular period of time • Supply factors • quantity offered at various prices

12. Economic Objectives • Microeconomic Theory assumes a profit maximization objective • Equilibrium point • the point where the supply and demand curves intersect

13. Elasticity • Elasticity of Demand • refers to the responsiveness of consumers to changes in price • E = %change in Q demanded/% change in P • E>1, the demand curve is elastic, • E<1, the demand curve is inelastic, • and where E=1, unitary elasticity of demand exists

14. Elasticity is a function of: • Substitutes • the type of good (necessity vs. luxury) • product replacement • can we repair or not?

15. Total cost is composed of: TC = FC + VC Variable costs costs that change with the level of production Fixed costs stable regardless of production levels Breakeven Point One Approach TC =TR pxq = FC + VC/unit Alternative Approach BEP = TFC/per unit contribution to FC see handout! BEP with profit BEP = TFC + profit obj/ per unit contribution to FC Costs

16. Discounts • Quantity Discounts • cumulative and noncumulative • Trade Discounts • Cash Discounts • Seasonal Discounts

17. Skimming and Penetration Pricing • Market Skimming • set price high relative to competition • lack competition • new products targeted to higher income consumers • easier to lower than raise • keeps production lower til can grow capacity • Penetration • elastic demand, lower unit cost, high competition