chapter 14 -product classifications --- durability and tangibility --> non d

urable -- soaps, shampoos

purch
ased frequently.
--> durab
le -- clothes, furniture, cars.
--> servi
ces -- intangible, inseparable, variable and
peri
shable products.
hair
cuts, legal advice and appliance repairs.
--- consumer goods classification --> co
nvenience goods -- frequently, immediately, with
minimal
e
ffort.
identify the brand
convey descriptive and persuasive information
facilitate product transportation and protection.
assist at home storage.
aid product consumption.
promotional pricing and differentiated pricing
buying process for customers
============================

Price Setting
=============
1) Select the price objective
- SURVIVAL -- burdened by overcapacity, changing costs. As long as the com
pany covers for fixed costs and variable
costs, the company stays in business.
- MAXIMIZE CURRENT PROFIT -- Companies try to set a price that will maximi
ze current profits. Estimate the demand and
costs with alternative prices and strategies
and choose the one with the maximal profit.
# assumption -- company is well aware of its
demand and supply functions which are hard
to estimate.
- MAXIMIZE MARKET SHARE -- Some companies want to maximize their market sh
are.
Follows a market penetration strategy.
Only applicable for the following case
1) market is highly price sensitive and a low p
rice stimulates product growth.
2) production and distribution costs fall with
accumulated production costs.
3) low price discourages actual and potential c
ompetition.
- MAXIMIZE MARKET SKIMMING -- Companies start out with exorbitant price ra
tes, in generating high demand for the product
for its exclusiveness and exalts the status

of the user.
Strategy could be fatal. If the competitor c
ompany tries to come with the same product at
a lesser price. then the company could face
severe loss.
Only applicable when
1) high market demand
2) only when it sways away the competitors w
ho shall be intimitaded by the high price of
the product.
3) should bring exclusive status to the user
.
4) price enough to cancel out the advantage
than the case when a lesser price is charged for
a larger market.
- PRODUCT QUALITY LEADERSHIP -- companies want to be a role model for thei
r quality, exclusiveness and premium prices to the user.
They strive to be "affordable luxuries" by
lending premium quality services at a lower cost.
- OTHER OBJECTIVES -- Non profit organizations and other organizations may
have other pricing objectives.
2) Determining demand
- Price sensitivity
Customers are less price sensitive to the low-cost items or item
s that are bought infrequently.
They think that because
1) No competitors ot substitutes aren't available in the market.
2) The price increase is not readily observed.
3) the higher price is justified.
4) Price is only a small part of the TCO(total cost operating) of
obtaining, operationg and servicing
the product.
5) assumed to have more quality and prestige.
- Estimating demand curves
Surveys - explore how many units are sold at different rates at d
ifferent analysis. On the aggregation of these
surveys a rough analysis could be estimated.
Price Experiments - Prices are set differently so as to get the de
mand at different rates.
Statistical analysis - Considering how many units have been sold i
n the past and what were the prices before the
current price could be used in estimating the demand.
- Price elasticity of demands - graphs + explanation
demand - elastic -- sellers consider lowering the price.
3) Estimating costs
*** Types of costs and levels of production
Fixed costs -- includes only the production costs.
-- also known as overhead
-- does not vary with change in profit margin or revenue generated.
Variable costs -- directly vary with production.
-- depends on the number of units produced.
Total costs = fixed cost + variable cost.

*** Cost as a function of accumulated production

decline in the average cost with accumulated cost -- experience curve.
*** Target Costing
-- engineers, designers and purchasing agent work together to bring
down the price together as much as possible.
4) Analysing competitors cost price and offers.
5) Selecting a pricing method.
markup pricing -- ignores the current demand, the perceived value is inaccurate
and not optimal.
perceived pricing -- buyer's image of the product.
going rate pricing -- all firms charge similar prices. Anthing less will kill yo
u.
Auction type pricing -- growing more popular -- especially with scores of electr
onic marketplace.
-- English - one seller, many buyers.
-- Dutch
- announce a higher price for the product, eventually the price dec
reases.
-- Sealed Bid - suppliers would submit only one bid, cannot know about other bid
s.
6) Selecting the final price
impact of other marketing activites
company pricing policies
gain and risk sharing policies
impact of price on other parties.