Lamb 19 and 20 notes
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Pricing plays an important role in allocating resources in the economy and generating revenue for businesses. Pricing objectives can be profit-oriented, aiming to maximize profits or achieve a target return on investment. They can also be sales-oriented, focusing on increasing market share or sales volume. Additionally, pricing objectives may seek to maintain the status quo by matching competitors' prices. Demand is a key determinant of price, as quantity demanded generally decreases when price increases, with some exceptions. Factors like availability of substitutes influence the elasticity of demand.
Lamb 19 and 20 notes
- 1. s KEEY TERM! KEY CONCERTS L01 price that which is given Discuss the importance of pricing decisions to the economy and up in an exchange to to the individual firm. Pricing plays an integral role in the U.S. economy by acquire a good or service allocating goods and services among consumers, governments, and businesses. revenue the price charged to Pricing is essential in business because it creates revenue, which is the basis of all business customers multiplied by the number activity. In setting prices, marketing managers strive to find a level high enough to produce of units sold a satisfactory profit. profit revenue minus expenses rivet x sal€s ur/rr= Ktvtitut KMVtf/Ut - COSTS = rKPHT rx&ttrpxjvts qitpwrn, sai~aw ivcKtAsts, Atvt> coKtoKATt ito/tsr/ittrr. L0 2 return on investment (ROI) net profit after taxes divided by total List and explain a variety of pricing objectives. Establishing realistic and assets measurable pricing objectives is a critical part of any firm's marketing strategy. market share a company's product Pricing objectives are commonly classified into three categories: profit oriented, sales sales as a percentage of total sales for oriented, and status quo. Profit-oriented pricing is based on profit maximization, a satisfactory that industry level of profit, or a target return on investment (ROI). The goal of profit maximization is to generate status quo pricing a pricing as much revenue as possible in relation to cost. Often, a more practical approach than profit objective that maintains existing prices maximization is setting prices to produce profits that will satisfy management and stockholders. or meets the competition's prices The most common profit-oriented strategy is pricing for a specific return on investment relative to a firm's assets. The second type of pricing objective is sales oriented, and it focuses on either L0 3 demand the quantity of maintaining a percentage share of the market or maximizing dollar or unit sales. The third type of a product that will be sold pricing objective aims to maintain the status quo by matching competitors' prices. in the market at various Profit Oriented Sales Oriented Status Quo prices for a specified period supply the quantity of a product that will be offered to the market ■ ■ '11^ r" Profit " W Satisfactory Market Sales ~^W Target , by a supplier at various prices for a k maximization ^L. Profits A R01 A Share Maximization specified period ^ ^ M ^■■j H H B B H I j • Drive down Net profit • Unit 'Generate 1 Meet the price equilibrium the price at • Revenue cash costs after tax competition which demand and supply are equal • Increase • Passive Total assets revenue policy elasticity of demand consumers' responsiveness or sensitivity to changes in price Explain the role of demand in price determination. Demand is a key elastic demand a situation in which determinant of price. When establishing prices, a firm must first determine consumer demand is sensitive to demand for its product. A typical demand schedule shows an inverse relationship changes in price between quantity inelastic demand a situation in demanded and price: which an increase or a decrease When price is lowered, in price will not significantly affect sales increase; and when demand for the product price is increased, the unitary elasticity a situation in quantity demanded falls. which total revenue remains the same For prestige products, when prices change however, there may be a direct relationship Quantity demanded (a) Quantity demanded (b) between demand and What affects elasticity? • Availability of substitutes price: The quantity • Price relative to purchasing power demanded will increase • Product durability • Product's other uses as price increases. . Inflation rate '.'-> 2012 ( Vm;j;h:c I .earning. All Ri May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.