Price Administration and Strategy

What is Price?It is what you are willing to

exchange for the product service in the marketplace. can be money could be a barter

Most marketers generally agree that price is the most important of the P’s.

Not previously a concern in HCM

Role with the Consumer

If have incomplete information - consumers perceive a direct relationship between p and q.

In other words, the higher the p, the higher the perceived quality

Names of “Price”

“Fees”PriceTuitionCharges

All reflect what will be given up by the consumer in exchange for the product, good, service

Types of PricingList Price

is the base price or initial offering of a productAllocation Role of Price

role in helping consumers decide how to derive the greatest expected utility from their buying power

Perceived Value Pricing establishment of prices that are intended to

enhance the utility that customers will perceive in the products offered

Regulation and Pricing

Area of marketing that is highly regulated

Discriminatory pricing is unlawful when their effect may be to injure to substantially reduce competition Robinson-Patman Act

Unfair Trade LawsState laws requiring

sellers to maintain minimum prices for comparable merchandise

Fair Trade Laws permit manufacturers

to stipulate minimum retail prices for products and to require retailers to sign abiding contracts

Pricing Objectives

Should be comparable with the marketing objectives

Profit orientedSales orientedStatus quoCompetitive

Role Of Government and Insurance

The government offers a set of “prices” to health care providers in the form of VA and medicare reimbursement schedules

These fee schedules servce as the foundation for commercial insurance plans and their proposed contract prices

Economic Role In Pricing

Pricing requires that the firm attempt to estimate total demand for the good. 1) determine the price the market expects 2) estimate the sales volume at different

pricesExpected Prices - what the consumer

consciously or subconsciously value the product at - what the product is worth

Develop a demand curve

Demand

The quantity of a product that will be sold in the market at various prices for a particular period of time

Supply factors quantity offered at

various prices

Economic Objectives

Microeconomic Theory assumes a profit maximization objective

Equilibrium point the point where the supply and demand

curves intersect

Elasticity

Elasticity of Demand refers to the responsiveness of consumers to

changes in price E = %change in Q demanded/% change in P

E>1, the demand curve is elastic,E<1, the demand curve is inelastic, and where E=1, unitary elasticity of

demand exists

Elasticity is a function of:

Substitutesthe type of good (necessity vs. luxury)

product replacement can we repair or not?

CostsTotal cost is

composed of: TC = FC + VC

Variable costs costs that change

with the level of production

Fixed costs stable regardless of

production levels

Breakeven PointOne Approach

TC =TR pxq = FC + VC/unit

Alternative Approach BEP = TFC/per unit

contribution to FC see handout! BEP with profit

BEP = TFC + profit obj/ per unit contribution to FC

DiscountsQuantity Discounts

cumulative and noncumulativeTrade DiscountsCash DiscountsSeasonal Discounts

Skimming and Penetration PricingMarket Skimming

set price high relative to competition lack competition new products targeted to higher income

consumers easier to lower than raise keeps production lower til can grow capacity

Penetration elastic demand, lower unit cost, high competition