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Transcript of PRICING
Pricing New Products
Company leaders have some latitude when setting the price. The price ceiling will be the highest possible price; the price floor will be the lowest.
Skimming price strategies set the price near the ceiling and emphasize the exclusivity of owning a new product. Skimming also is used in dual-channel marketing when products are first introduced in the business-to-business segment at a higher price.
When setting a price, marketing managers may use an incremental approach, which bases the price on the incremental costs of producing the product over the costs of producing an existing product.
One common tactic used to attract new customers is offering a price discount. Lower prices seem more attractive and pose less of a purchase risk. Price discounts are offered to consumers in the forms of sale prices, seasonal discounts, and bundle discounts.
Tuesday, November 18, 2014
Vol XCIII, No. 311
Pricing Strategies and Objectives
Changing Prices of Existing Products
indicates the basic direction the company's marketing and management team intends to take when setting prices.
create the starting point for determining pricing strategies. Four common pricing objectives are
sales maximization, profit maximization, market-share maximization, and competitive parity.
When considering price changes, marketing managers examine the potential reactions of competitors, whether the company is an industry leader or follower, the impact on brand image, and the impact on the company's gross margin. Weber's Law suggests that unless a price change is more than 10%, it will not have an impact.
The four basic approaches for
setting prices are:
The cost-oriented approach
The cost-oriented approach reflects the amount needed to cover the fixed and variable cost necessary to sty in business. The two most common methods are :
The demand-oriented approach
The demand-oriented approach finds an equilibrium point at which there is a balance between the amount available (
) and what people are willing to pay (
Competition-oriented pricing matches the maturity stage of the product life cycle. The three basic approaches are :
below the industry average
at the industry average
above the industry average
The profit-oriented approach maximizes profits by setting the prices at the highest possible level. Profit-oriented pricing captures start-up costs quickly, especially in circumstances in which a company will not experience new competition in the short term.
The profit-oriented approach
When a new product costs 15% more to produce than an existing product, the new item will be priced 15% higher.
result from lower production cost, increased competition, meeting a competitor's price reduction, and declines in demand.
are undertaken when production cost rise. In most industries, an industry leader leads the way on price increases.
Legal and Ethical Pricing Issues
The Federal Trade Commission (FTC) and other agencies monitor the pricing practices of firms. When price discrimination occurs, a company sells merchandise to different buyers at different prices. Price fixing is an agreement between competitors to charge the same price for a good or service, even if the agreement has been reached informally.
The FTC is empowered to intervene in these issues when necessary.
Hanson Production: Pricing for Opening Day
Sy.Med Development, Inc.
Arvind Mills: Re-Evaluating Profitability
Hanson Production: Pricing for Opening Day
Formed in the mid-1950s by a husband and wife team, Hanson Productions had earned acclaim with its off-Broadway shows. The company's goal was to further the advancement of the arts in New York City. The company achieved its first major success in the 1970s. From that moment forward, the Hansons grew their name and reach as a production company. Although the company grew consistently each year, the work force had expanded at a much slower pace.
The company goal was simple; continue to develop the Arts in urban locations. W wanted quality, not quantity, so we were deliberately rigorous about developing the material. We would tolerate some of the more temperamental writers or eccentric directors because of their good work. Our sense of material was the key and there were countless story meetings where we locked horns even the smallest of details.In the end, I think that's what set us apart. We weren't the easiest place but we certainly displayed a work ethic that showed we cared. Artists, at the end of the day, appreciated that and so it was not so difficult to work with them again on future shows. Some of my best friends in the theater are people I've Screamed at and who've screamed right back at me.
Setting the ticket price is important, because setting it low or high has its drawbacks and benefits.
~Theater Seating Charts for Three New York Theaters
Hanson productions have the dilemma in choosing theater for the Broadway. Regardless which theater is chosen, Hanson production would need to enter into agreement with the theater owner regarding termination clause.
Royalty Fee Schedule for Typical New York Musical (based on profit)
Theater Budgets for Three New York Theaters
Weekly Operating Costs for a Broadway Product (musical)
Weekly Operating Costs for a Broadway Product (musical) (continued)
A large-scale musical with a cast of 20. Set in1967 Detroit ,revival boasted some of most beloved songs.
Opening night was slated for the first week in the coming March.
For the first show Ambassador Theater in 219 West 49th street opened November 14,1996 with 1.125 capacity. The natural target audience was baby boomers in the crosshairs.
New York City Average Ticket Prices for Plays
New York City Average Ticket Prices for a Musical
Attendance and Weekly Gross Revenue-Highest Grossing New York Shows
Production Costs for a Broadway Production (Musical)
Subtotal carried forward $ 5,703,056
Advertising $ 1,500,000
Union bonds $ 120,000
Administration $ 1,508,616 Out of town $ 3,000,000
Reserves $ 1,250,000
TOTAL CAPITAL REQUIRED $13,081,672
Regardless of the theater ,revenue expectations were expected to be $830.000 and $1.03 million per week.
What should be the primary pricing objective for the upcoming production? Why?
Should the opening-day price based on cost, demand/supply, the competition, or a profit target?
Describe the relationship between price, quality, and demand for theater productions such as this one.
How would pricing based on the competition work in this situation?