Competitive Market and Marketing Strategies: Is the Right Price a Fair Price?
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You are an executive for a large multinational corporation and are meeting with other managers to discuss the following topic: Is the right price a fair price?
Prices are often set to satisfy demand or to reflect the premium that consumers are willing to pay for a product or service. Some critics shudder, however, at the thought of $2 bottles of water, $150 running shoes, and $500 concert tickets.
Take the position: Prices should reflect the value that consumers are willing to pay. Verses, Prices should primarily just reflect the cost involved in making a product or service.
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Price is the only element in the marketing mix that produces revenue and the other element produces costs. Price is a measure of value in exchange (strictly speaking, nothing really has a price until it is offered in exchange). Price may be expressed in monetary terms (a sale) or in non-monetary terms (e.g., barter). There are two principal theories of price that should be of concern to us in the context of customer right to fair price, the cost theory and the market theory.
The Cost Theory of Prices:
According to the cost theory, value in exchange is a function of the cost of efficient production or acquisition of the object of the exchange and the required return (profit). In other words, the fair price of something will depend ultimately on how much it costs for the seller to make the thing available to the buyer and on the calculation of a reasonable profit for the seller. For example, a retailer would receive an unfair price if buyers are unwilling to pay enough for her merchandise to permit her to recover the cost of acquiring the merchandise and offering it for sale (inventory and overhead costs) and make a reasonable profit. Similarly, farmers receive unfair prices for their crops, milk, or livestock if the prices do not cover their costs (including seed, labor, capital, and ...
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