Ebook Essentials of marketing (3/E): Part 2
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Ebook Essentials of marketing (3/E): Part 2
ObjectivesAfter reading this chapter you should be able to:•explain the advantages and disadvantages of different pricing methods;•calculate prices us Ebook Essentials of marketing (3/E): Part 2sing different approaches;•choose the correct pricing strategy to fit a firm's overall objectives;•explain some of the economic theories underlying the marketer's view of price and value.Economic theories of pricing and valueINTRODUCTIONPricing may not be exciting, but it is one of the most importan Ebook Essentials of marketing (3/E): Part 2t issues for marketers; it is crucial not only to the profit that is to be made, but also to the quantity of the products that will be sold. This chapEbook Essentials of marketing (3/E): Part 2
ter examines the different ways of pricing that are used, and offers some ideas on how to choose a pricing strategy.ECONOMIC THEORIES OF PRICING AND VObjectivesAfter reading this chapter you should be able to:•explain the advantages and disadvantages of different pricing methods;•calculate prices us Ebook Essentials of marketing (3/E): Part 2se, more suppliers find it profitable to enter the market, but the demand for the product falls because fewer customers think the product is worth the money. Conversely, as prices fall there is more demand, but fewer suppliers feel it is worthwhile supplying the product so less is produced. Eventual Ebook Essentials of marketing (3/E): Part 2ly a state of equilibrium is reached where the quantity produced is equal to the quantity consumed, and at that point the price will be fixed.UnfortunEbook Essentials of marketing (3/E): Part 2
ately this neat model has a number of drawbacks.FIGURE 7.1Price determined by marketQuantity supplied by marketSupply and demandChapter 7 • Pricing stObjectivesAfter reading this chapter you should be able to:•explain the advantages and disadvantages of different pricing methods;•calculate prices us Ebook Essentials of marketing (3/E): Part 2t assumes that all the suppliers are producing identical products, which is rarely the case.•Thirdly, it assumes that price is the only issue that affects customer behaviour, which is clearly not true.•Fourthly, it assumes that customers always behave completely rationally, which again is substantia Ebook Essentials of marketing (3/E): Part 2lly not the case.•Fifthly, there is an assumption that people will always buy more of a product if it is cheaper. This is not true of such products asEbook Essentials of marketing (3/E): Part 2
wedding rings or artificial limbs.•Finally, the model assumes that the suppliers are in perfect competition - that none of them has the power to 'rigObjectivesAfter reading this chapter you should be able to:•explain the advantages and disadvantages of different pricing methods;•calculate prices us Ebook Essentials of marketing (3/E): Part 2irst said that 'the customer is king'.1 Unfortunately the shortcomings of the model mean that it has little practical use, no matter how helpful it is in understanding a principle. Economists have therefore added considerably to the theory.Elasticity of demandThis concept states that different produ Ebook Essentials of marketing (3/E): Part 2ct categories will show different degrees of sensitivity to price change.Figure 7.2(a) shows a product where the quantity sold is affected only slightEbook Essentials of marketing (3/E): Part 2
ly by price fluctuations, i.e. the demand is inelastic. An example of this is salt. Figure 7.2(b) shows a product where even a small difference in priObjectivesAfter reading this chapter you should be able to:•explain the advantages and disadvantages of different pricing methods;•calculate prices us Ebook Essentials of marketing (3/E): Part 2 even a small rise in interest rates appears to affect the propensity to borrow. Although these examples relate to consumers, the same is true for suppliers: in some cases suppliers can react very quickly to changes in the quantities demanded (for example, banking), whereas in other cases the suppli Ebook Essentials of marketing (3/E): Part 2ers need long lead times to change the production levels (for instance, farming).The price elasticity of demand concept implies that there is no basisEbook Essentials of marketing (3/E): Part 2
for defining products as necessities or luxuries. If a necessity is defined as something without which life cannot be sustained, then its demand curvObjectivesAfter reading this chapter you should be able to:•explain the advantages and disadvantages of different pricing methods;•calculate prices us Ebook Essentials of marketing (3/E): Part 2nd valueFIGURE 7.2Price elasticity of demandEconomic choiceEconomists have demonstrated that there can never be enough resources in the world to satisfy everybody's wants, and therefore resources have to be allocated in some way (which will probably mean an equality of dissatisfaction). Resources us Ebook Essentials of marketing (3/E): Part 2ed for one purpose cannot, of course, be used for another: this is the concept of the economic choice.For example, a clothing manufacturer has only aEbook Essentials of marketing (3/E): Part 2
certain number of machinists who work a certain number of hours. Illis means that it may be possible to produce either 8000 shirts with the available ObjectivesAfter reading this chapter you should be able to:•explain the advantages and disadvantages of different pricing methods;•calculate prices us Ebook Essentials of marketing (3/E): Part 2upply, and disappoint the other customer.ObjectivesAfter reading this chapter you should be able to:•explain the advantages and disadvantages of different pricing methods;•calculate prices usGọi ngay
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