AR PRICING STRAT

Cost

Oriented Pricing

Cost

Plus Pricing

Mark

Up Pricing

Target Return Pricing

Price is set to achieve a target return on investment and assumes a certain sales volume.

Market

Oriented Pricing (Competition

Perceived Value Pricing

Price is based on how much customers are willing to pay, considering brand image, experience, service, and trust.

Value

Based Pricing

Going

Rate Pricing

Auction Pricing

Product is sold to the highest bidder.

Differential Pricing

Same product is sold at different prices to different customers, such as quantity discounts, BOGO, and loyalty discounts.

Measuring and Communicating Value

Process of understanding and explaining product value to customers.

Customer Satisfaction and Price

Higher satisfaction does not always lead to willingness to pay a higher price.

Value Measurement

Requires deep understanding of customer needs.

Price Sensitivity

Poor communication of value increases customer sensitivity to price.

Marketing Role in Value

Marketing communicates and strengthens the perceived value of a product.

Value

Based Market Segmentation

Determine Basic Segmentation Criteria

Identifies initial basis for grouping customers

Identify Discriminating Price Drivers

Determines factors that influence willingness to pay

Determine Operational Constraints and Advantages

Assesses limits and strengths of the business

Create Primary and Secondary Segments

Divides market into main and supporting groups

Create Detailed Segment Descriptions

Describes each segment’s behavior and characteristics

Develop Segment Matrix and Pricing Fences

Organizes segments and sets rules to control pricing differences

Marginal Cost (MC)

Additional cost of producing one more unit

Marginal Revenue (MR)

Additional revenue gained from selling one more unit

MR and MC Relationship

Guides production decisions based on profit optimization

Penetration Pricing

Sets a low initial price to gain market share quickly

Price Skimming

Sets a high initial price then lowers it over time

Competition Pricing

Sets price based on competitors’ pricing

Product Line Pricing

Sets different prices for different versions of a product

Bundle Pricing

Combines multiple products and sells them as one package

Psychological Pricing

Uses pricing tactics like .99 endings to influence perception

Premium Pricing

Sets a high price to signal quality and prestige

Perfect Competition

Market where firms are price takers and cannot control price

Price = MR = AR

In perfect competition, price equals marginal revenue and average revenue

No Economic Profit (Long Run)

Firms earn normal profit due to free entry and exit

Monopolistic Competition

Market with many firms selling differentiated products

Differentiated Products

Products are similar but have unique features

Some Control Over Price

Firms can adjust prices due to product differences

Supernormal Profit (Short Run)

Firms earn higher than normal profit temporarily

Oligopoly

Market dominated by a few large firms

Few Firms Dominate

Small number of firms control most of the market

Price Interdependence

Firms base pricing decisions on competitors’ actions

Kinked Demand Curve

Demand curve that shows price rigidity in oligopoly

Monopoly

Market with one seller controlling the entire supply

Single Seller

Only one firm operates in the market

Inelastic Demand

Consumers are less responsive to price changes

Price Above Cost

Firm sets higher prices due to lack of competition

Law of Demand

Lower price leads to higher quantity demanded

Law of Supply

Higher price leads to higher quantity supplied

Equilibrium Price

Price where quantity demanded equals quantity supplied

Shift in Demand or Supply

Changes in market conditions that affect equilibrium price

Elasticity

Measures how responsive demand or supply is to price changes

Firm

Business organization that produces goods or services

Profit Maximization

Main goal of earning the highest possible profit

Production Decision

Choice of how much output to produce

Pricing Decision

Choice of what price to charge

Competition Strategy

Method a firm uses to compete in the market

Perfect competition

TR=PXQ

Market Structure

Characteristics of a market that influence how firms compete

Many Buyers and Sellers

Large number of participants with no single control over price

Homogeneous Products

Products are identical with no differentiation

No Barriers to Entry

Firms can easily enter or exit the market

Price Taker

Firm accepts the market price and cannot control it

Focus on Efficiency

Firms aim to minimize cost and maximize output efficiency

MonopoLy

Market with only one seller offering a unique product

Single Seller

One firm controls the entire market supply

Unique Product

No close substitute is available

High Barriers to Entry

Strong obstacles prevent new firms from entering

Price Maker

Firm has control over setting the price

Strong Market Power

Firm can influence price and output levels

MR = MC

Profit maximization occurs where marginal revenue equals marginal cost

Monopolistic Competition

Market with many sellers offering differentiated products

Many Sellers

Numerous firms compete in the market

Differentiated Products

Products vary in features, quality, or branding

Low Barriers to Entry

Firms can enter and exit with ease

Some Control Over Price

Firms adjust prices due to product differences

Non

Price Competition

D = AR

Demand curve equals average revenue

Oligopoly

Market dominated by a few large firms

Few Large Firms

Small number of firms control most of the market

Similar or Differentiated Products

Products can be identical or varied

High Barriers to Entry

Entry is difficult for new firms

Interdependence

Firms consider competitors’ actions when making decisions

Collusion or Competition

Firms may cooperate or compete

MR = MC

Profit maximization occurs where marginal revenue equals marginal cost

Barriers to Entry

Obstacles that prevent new firms from entering the market

Market Power

Ability of a firm to control price and output