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Maximizing Profits: Understanding Pricing Strategies in Marketing Mix

Explore the relationship between price, quantity sold, and break-even points in marketing, understand the impact of the Internet on consumer behavior, and learn about the 5 C's of pricing including customer orientation and cost considerations.

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Maximizing Profits: Understanding Pricing Strategies in Marketing Mix

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  1. Learning Objectives • Why should firms pay more attention to setting prices? • What is the relationship between price and quantity sold? • Why is it important to know a product’s break-even point? • Who wins in a price war? • How has the Internet changed the way some people use price to make purchasing decisions?

  2. Price and Value What’s the most you will pay for a pair of jeans?

  3. Price

  4. Price is a Signal PriceGrabber.com Website

  5. The Role of Price in the Marketing Mix Price is usually ranked as one of the most important factors in purchase decisions Price is the only marketing mix element that generates revenue

  6. The 5 C’s of Pricing

  7. 1st C: Company Objectives

  8. Profit Orientation

  9. Sales Orientation

  10. Competitor Orientation • Competitive parity • Status quo pricing • Value is not part of this pricing strategy

  11. Customer Orientation = Focus on customer expectations by matching prices to customer expectations automotive.com Website

  12. What are they trying to accomplish with this ad?

  13. 2nd C: Customers

  14. Demand Curves and Pricing Knowing demand curve enables to see relationship between price and demand

  15. Demand Curves

  16. Price Elasticity of Demand • Elastic (price sensitive) • Inelastic (price insensitive) • Consumers are less sensitive to price increases for necessities

  17. Price Elasticity of Demand

  18. Factors Influencing Price Elasticity of Demand Wal-Mart Commercial

  19. Substitution Effect • Meet Pete, college student on a budget: • Old Spice Sport Deodorant user • At the store he notices that Old Spice is more expensive • Pete decides to give another brand a try and save money

  20. Cross-Price Elasticity • Meet Kendra, self-supporting college student: • Buys a new printer on sale for a great price • Learns it requires special ink cartridges that cost more than the printer

  21. 3rd C: Costs • Variable Costs • Vary with production volume • Fixed Costs • Unaffected by production volume • Total Cost • Sum of variable and fixed costs

  22. Break Even Analysis and Decision Making

  23. Break Even Analysis

  24. 4th C: Competition Subway Commercial

  25. 5th C: Channel Members • Manufacturers, wholesalers and retailers can have different perspectives on pricing strategies • Manufactures must protect against gray market transactions

  26. Check Yourself What are the five Cs of pricing? Identify the four types of company objectives. What is the difference between elastic versus inelastic demand? How does one calculate the break-even point in units?

  27. Macro Influences on Pricing • The Internet • Increased price sensitivity • Growth of online auctions

  28. Economic Factors

  29. Check Yourself How have the Internet and economic factors affected the way people react to prices?

  30. Break-even analysis enables managers to examine the relationships among cost, price, revenue, and profit over different levels of production and sales. Glossary Return to slide

  31. Cross-price elasticity is the percentage change in the quantity of Product A demanded compared with the percentage change in price in Product B. Glossary Return to slide

  32. Fixed costs are those costs that remain essentially at the same level, regardless of any changes in the volume of production. Glossary Return to slide

  33. Income effect is the change in the quantity of a product demanded by consumers due to a change in their income. Glossary Return to slide

  34. The maximizing profits strategy assumes that 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. Glossary Return to slide

  35. Price is the overall sacrifice a consumer is willing to make to acquire a specific product or service. Glossary Return to slide

  36. The substitution effect refers to consumers’ ability to substitute other products for the focal brand. Glossary Return to slide

  37. Target profit pricing is implemented by firms to meet a targeted profit objective. The firms use price to stimulate a certain level of sales at a certain profit per unit. Glossary Return to slide

  38. Target return pricing occurs when firms employ pricing strategies designed to produce a specific return on their investment, usually expressed as a percentage of sales. Glossary Return to slide

  39. The total cost is the sum of the variable and fixed costs. Glossary Return to slide

  40. Variable costs are the costs that vary with production value. Glossary Return to slide

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