10. Pricing: Understanding and Capturing Customer Value

Question 1

Price

Answer 1

amount of “money charged for a product or service”, or the “sum of all the values that customers exchange for the benefits” of having or using the product or service.

Question 2

Major Pricing Strategies

Answer 2

- Customer Value-Based Pricing
\+ Good-value pricing
\+ Value-added pricing
- Cost-based pricing
- Competition-based pricing

Question 3

Customer Value-Based Pricing

Answer 3

Setting price based on buyers’ perceptions of value rather than on the seller’s cost.

Value-based pricing is customer driven.
Cost-based pricing is product driven.
Price is set to match perceived value.

Question 4

Good-value pricing

Answer 4

offering just the right combination of quality and good service at a fair price.

Question 5

Everyday low pricing (EDLP)

Answer 5

charging a constant everyday low price with few or no temporary price discounts.

Question 6

High-low pricing

Answer 6

charging higher prices on an everyday basis but running frequent promotions to lower prices temporarily on selected items.

Question 7

Value-added pricing

Answer 7

attaches value-added features and services to differentiate the companies offers and thus their higher prices.

Question 8

Cost-based pricing

Answer 8

sets prices based on the costs for producing, distributing, and selling the product plus a fair rate of return for effort and risk.

Question 9

Types of Costs (3)

Answer 9

1. Fixed costs (overhead)
   do not vary with production or sales level (Rent, Heat, Interest, Executive salaries)
2. Variable costs
   Costs that vary directly with the level of production (Raw materials, Packaging)
3. Total costs
   The sum of the fixed and variable costs for any given level of production.

Question 10

Cost-plus pricing (markup pricing) (def, benefit, disadvantage)

Answer 10

Adding a standard markup to the cost of the product.
Benefits
- Sellers are certain about costs.
- Price competition is minimized.
- Buyers feel it is fair.
Disadvantages
- Ignores demand and competitor prices

Question 11

Break-even pricing (target return pricing)

Answer 11

Setting price to break even on the costs of making and marketing a product or setting price to make a target return.

Question 12

Competition-based pricing

Answer 12

setting prices based on competitors’ strategies, costs, prices, and market offerings.

Question 13

Target costing (thuộc phần Overall Marketing Strategy, Objectives, and Mix)

Answer 13

starts with an ideal selling price based on consumer value considerations and then targets costs that will ensure that the price is met.

Question 14

Organizational Considerations

Answer 14

Who should set prices?

Who can influence prices?

Question 15

The Market and Demand

Answer 15

Before setting prices, the marketer must understand the relationship between price and demand for its products.

Question 16

Demand curve

Answer 16

A curve that shows the number of units the market will buy in a given time period, at different prices that might be charged.
Demand and price are inversely related.
Higher price = lower demand

Question 17

Price elasticity (Inelastic demand, Elastic demand)

Answer 17

A measure of the sensitivity of demand to changes in price.

• Inelastic demand is when demand hardly changes with a small change in price.
• Elastic demand is when demand changes greatly with a small change in price.

Question 18

Pricing In Different Types of Markets

1. pure competition (many buyers and sellers, no much effect on price)
2. monopolistic competition (many buyers and sellers, over range of prices)
3. oligopolistic competition (a few large sellers, each is alert and responsive to competitors’ pricing strategies)
4. pure monopoly (one seller, price is handled differently in each case)

(monopoly: độc quyền
oligopoly: độc quyền nhóm bán)

Answer 18

1. pure competition:
   - many buyers and sellers
   - uniform commodity, such as wheat, copper, or financial securities
   - No single buyer or seller has much effect on the going market price -> sellers do not spend much time on marketing strategy
2. monopolistic competition
   - many buyers and sellers
   - trade over a range of prices because sellers can differentiate their offers to buyers.
3. oligopolistic competition
   - only a few large sellers (only four companies—Verizon, AT&T, Sprint, and T-Mobile—control more than 90 percent of the U.S. wireless service provider market)
   - Each seller is alert and responsive to competitors’ pricing strategies and marketing moves
4. pure monopoly
   - dominated by one seller
   - seller may be a government monopoly (the U.S. Postal Service), a private regulated monopoly (a power company), or a private unregulated monopoly (De Beers and diamonds)
   - Pricing is handled differently in each case.

Question 19

The Economy and Other External Factors

Answer 19

1. Economic conditions
2. Reseller’s response to price
3. Government
4. Social concerns