Chapter 14 marketing: pricing concepts for capturing value

Price is the only p that actually brings in income

Promotion is an outlay of cost
New product development is a development
Distribution costs is a cost

Price is challenging for companies to get right

Company objectives, customers, costs, competition, channel members

These c’s are connected to value

Company objectives:
1. Profit oriented
2. Sales oriented
3. Competitor oriented
4. Customer oriented

Profit: all products must reach a certain profit margin to reach a particular profit goal for the girm
Sales: set prices low to generate new sales and take sales from competitors
Competitor: to discourage more competitors from entering the market, set prices very low
Customer oriented: target a market segment of consumers who highly value a particular product
value

Profit orientation:
1. target profit pricing
2. target return pricing
3. maximizing profits
Sales oriented:
1. Focus on increasing sales
2. Premium pricing may be pursued
3. More concerned with overall market share
Competitor oriented:
1. Competitive parity: prices similar to competitor
2. Status quo pricing: only change prices to meet competitors prices
3. Value is not directly a part of this pricing strategy
Customer oriented:
1. Pricing strategy based on how firm can add value
2. Match prices to customer expectations
Demand and price relation: higher prices= lower demand (usually)
Differs from luxury goods demand curve

Price elasticity of demand:

Elastic (price sensitive)
Inelastic: price insensitive
Consumers are less sensitive to price increases for necessities

Dynamic pricing: individualized pricing

Factors influencing price elasticity of demand:

Income effect, less price sensitive as income grows
Substitution effect: if there is no substitute, you are probably willing to pay
Cross price elasticity: complementary products vs. substitute products

Five c’s of pricing:

Variable costs
Fixed costs
Total cost

Break Even analysis and decision making:

Total vc = variable cost per unit * quantity
Total costs= fixed costs + total variable costs
Total rev= price * quantity

Break even point: fixed costs/ contribution per unit

Our example break even is 50$ per unit

The 5 c’s of pricing: competition

5 c’s of pricing: channel members

- Manufacturer, wholesalers, and retailers can have different perspectives on pricing
strategies

Pricing strategies: a pricing strategy is a long term approach to

Everyday low prices (edlp) vs high low pricing
Create value for consumers in different ways
Edlp reduces customers search costs
High low provides the thrill of the chase for the lowest price

Legal and ethical aspects of pricing:

Deceptive or illegal price advertising
- Deceptive reference price
- Loss-leader pricing
- Bait and switch
Predatory pricing: prices are set low with the intent to drive competitor out of business
- It is illegal
- Difficult to prove
Price discrimination:
It is not always illegal→ different rules in the b2b and b2c markets→ federal law does not apply
to sales to end consumers
Price fixing:
- Horizontal price fixing
- Competing firms should refrain from discussing prices or terms and conditions of sale
with competitors
Vertical price fixing- Manufacturers often encourage retailers to sell their merchandise at a
specific price, known as the manufacturer’s suggested retail price (MSRP)

Gray market pricing:

Uses irregular but not necessarily illegal market for luxury goods
Summary of Chapter 14: "Marketing: Pricing Concepts for Capturing Value"

- Price is the sole 'P' that generates income, while other elements like promotion, new product
development, and distribution incur costs.
- Setting the right price is a challenge for companies.
- Various factors (company objectives, customers, costs, competition, and channel members)
are interconnected in delivering value through pricing strategies.
- Company objectives include profit-oriented, sales-oriented, competitor-oriented, and
customer-oriented approaches.
- Profit-oriented objectives focus on profit margins, while sales-oriented aims to increase sales
and market share. Competitor-oriented strategies involve pricing to deter new competitors, and
customer-oriented strategies target specific consumer segments valuing particular product
features.
- Price elasticity of demand determines consumer sensitivity to price changes, classified as
elastic (price-sensitive) or inelastic (price-insensitive), often influenced by factors like income,
substitution effects, and cross-price elasticity.
- The 'Five C's of Pricing' encompass variable costs, fixed costs, total cost, competition, and
channel members' perspectives.
- Pricing strategies like Everyday Low Prices (EDLP) and High-Low Pricing create value for
consumers in different ways, reducing search costs or offering the thrill of finding the lowest
price, respectively.
- Legal and ethical aspects of pricing involve practices like deceptive advertising, loss-leader
pricing, predatory pricing, price discrimination, price fixing (horizontal and vertical), and gray
market pricing.

These notes provide insights into pricing concepts, strategies, and ethical considerations in
marketing, aiding in future study and reference.