BA 315 CHAPTER 9- PRICING LINDELL PHILLIP CHEW Pricing programs are the plans' that a firm develops that indicate what level of price should be charged in order to implement the marketing strategy

The framework for selecting pricing programs includes six elements: 1,2,3,4,5,6

1.Establish the pricing objective. 2.Analyze the price elasticity of demand. 3.Identify key competitive factors impacting price competition. 4.Estimate the relationship between price, changes and volume, cost, and profit changes. 5.Evaluate the potential impact on any product line substitutes or complements. 6.Determine if any legal limitations on pricing decisions exist or if any modifications are necessary for international

The purpose of any pricing program is to support the marketing strategy that has been developed for the product or product line PRIMARY DEMAND BASED SELECTIVE DEMAND BASED PRODUCT LINE BASED OBJECTIVES, OBJECTIVES, OBJECTIVES

Primary demand based objectives are selected if the firm believes that price can be used to increase the number of users or increase the rate of purchase.

Selective-demand-based objectives are employed when a firm wishes to retain its customer base or wishes to use price to neutralize the effect of competitors' prices on market share.

Product-line-based objectives are used when a firm desires quality distinctions among substitutes or expansion of product range among existing customers if they are complements.

Primary-demand-based objectives are selected if the firm believes that price can be used to increase the number of users or increase the rate of purchase. Selective-demand-based objectives are employed when a firm wishes to retain its customer base or wishes to use price to neutralize the effect of competitors' prices on market share. Product-line-based objectives are used when a firm desires quality distinctions among substitutes or expansion of product range among existing customers if they are complements.

The price-elasticity of demand is measured by the percentage change in quantity divided by the percentage change in price. Price-elasticity measures the impact of price change on total revenue. price-elasticity of demand

A. Market elasticity indicated how total primary demand responds to a change in the average prices of all competitors. B. Company elasticity indicates the willingness of customers to shift brands or suppliers on the basis of price. C. Market and company demand- elasticity in some industries or markets is the sum of demand from several segments.

Competitors' reactions to a price change must be considered regardless of whether a manager is concerned with market or company elasticity.

Cost factors must also be considered in making pricing decisions. A. With the cost-plus approach, the price is determined by taking the cost per unit and adding a dollar or percentage-target-contribution margin. B. With the full-cost approach, all costs are considered in setting the minimum price. C. With the variable-cost approach, the price is set above the variable cost per unit.

Pricing programs may be selected after pricing objectives and the elasticity of demand have been established and after the competitive situation and cost structure have been assessed. Penetration pricing involves setting a price below competitive levels to stimulate an increase in demand. Parity pricing involves setting a price at or near competitive levels. Premium pricing involves setting a price above competitive levels.

Pricing decisions for one product can influence sales of other products in the firm's mix. Price cross-elasticities are the relationships that exist when a change in the price of one product influences the sales volume of the second product. A. Substitutes exist when a firm markets a line of products or brands, each of which serves the needs of slightly different target segments. 1. Anchoring is the effect that a price stimulus 11 on the reference points that buyers use to assess prices. 2. Subjective price scales are the psychological scales on which buyers code price informati

Complementary products are those that experience a sales increase (decrease) when related products experience a price cut (increase). Managers can take advantage of complementary relationships through price bundling and using price leaders.

LPC SAYS, “MOLTRIN AND RUFEN WILL BE ON EXAM TWO” SO WILL SOUTHWEST AIRLINES ARC ELASTICITY !!!!

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