Marketing Strategy: Key Concepts 7
What is price?
Price is the value exchanged for the product.
Economic (inc. barter)
Freedom of Choice (lock-in, opportunity cost)
Privacy
Evolution of pricing mechanisms: Fixed versus variable:
Chapt. 2 Digital Darwinism.
Pioneer of fixed pricing: Aaron Montgomery Ward
Only element of the MM that is given in return
Importance of (the economic aspect of) Price to the Marketer
Often the only element the marketer can change quickly in response to demand shifts.
Relates directly to total revenue TR = Price * Qtty
Profits = TR - TC
-effects profit directly through price, and indirectly by effecting the qtty sold, and effects total costs through its impact on the qtty sold, (ie economies of scale)
Can use price symbolically, emphasize quality or bargain (signal value).
Deflationary pressures, consumers very price conscious.
Six step process:
Establish marketing objectives
survival (short term)
profit max.
revenue max. (yield management pricing; dynamic pricing)
growth max. (penetration pricing ... "free")
market skimming
product-quality leadership (signaling effect?)
Demand schedule: elastic versus inelastic demand issues (priceline)
Percent change in quantity demanded relative to the percent change in price.
% change in Qtty demanded
-------------------------
% change in price
We are now looking at the actual impact on demand as price varies. Elastic demand is more sensitive to price than inelastic demand.
Elastic demand, greater than1 (-1)
Inelastic demand, less than 1 (-1)
Unitary demand, equal to 1
Always take the absolute values
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