05 Pricing Flashcards
What is price?
Price is the overall sacrifice a consumer is willing to make to acquire a specific product.
What does price include?
Price includes money that must be paid to the seller but it may also involve other sacrifices like time, travel costs, taxes and shipping costs.
When is price crucial?
Price becomes crucial when consumers have little knowledge about certain products/brands.
What is price-quality interferences?
The relationship between price and perceived quality: A higher price can lead to higher rather than lower demand.
This occurs when price is used as a signal that the product in question is of a high quality.
What aspects of pricing can affect consumer psychology?
- Price-quality interferences.
- Reference prices.
- Price Endings.
What are Reference Prices?
Any standard of comparison against which an observed price is compared. - E.g. • “Fairprice” • Typical price • Last price paid • Usual discounted price
What are Price Endings?
Just below prices affect us psychologically even though the actual price difference is insignificant (e.g. $9.99 vs. $10.00).
What are the stages of setting the price?
- Selecting the Pricing Objective.
- Determining Demand.
- Estimating Costs.
- Analysing Competitors.
- Selecting a Pricing Method.
What are the different ways of adapting the price?
- Price Discounts.
- Promotional Pricing.
- Initiating and Responding to Price Changes.
- Differentiated Pricing.
What are the strategies of pricing when selecting the pricing objective?
- Skimming pricing strategy.
- Penetration pricing strategy.
What is the skimming pricing strategy?
Setting a higher
price to maximise profit margins.
What is the penetration pricing strategy?
Setting a relatively low price initially to increase market share or maximise sales volume.
Why is selecting the price objective important?
Pricing strategies usually change as the product passes through its life cycle.
What occurs in the stage of determining demand?
The first step in estimating demand is to understand what affects price sensitivity.
When are customers less price-sensitive?
- In general, customers are less price sensitive to low-cost items or items they buy infrequently.
What are other moments when customers are less price-sensitive?
(1) There are few or no substitutes or competitors; (2) They perceive brand as having added value; (3) They are slow to change their buying habits; (4) Decision maker does not pay for product;
(5) Price is only a small part of the total cost of obtaining, operating, and servicing the product over its lifetime.
What are the types of costs and levels of production during estimating costs stage?
- Fixed vs. variable costs.
- Total costs.
- Average cost.
What occurs during the analysing competitors stage?
Comparison of firm’s offer to nearest competitor’s cost, prices and reactions (add or subtract value of offerings from their price based on comparison).
What are the different pricing methods?
- Cost-based.
- Competitor-based.
- Value-based.
What are the types of price discounts?
- Time discount.
- Quantity discount.
- Seasonal discount.
What is a seasonal discount?
A price reduction to those who buy merchandise out of season.
What is a quantity discount?
A price reduction to those who purchase large volumes.
What is a time discount?
A price reduction to buyers who pay bills promptly.
What are the types of promotional pricing?
- Loss leaders.
- Special event pricing.
- Special customer pricing.
- Cash rebates.
- Low-interest financing.
- Psychological discounting.
- Warranties.
