Chapter 9 Flashcards
(19 cards)
Define price
What is special about price?
What is price also? (to do with MM)
The amount of money charged for a product/service, or, the sum of all the values that customers give up in order to gain the benefits of having or using a product/service
It is the only element in the MM that produces revenue
One of the most flexible MM elements
Name the 3 pricing strategies
Define price floor. Which strategy is this with?
Define price ceiling. Which strategy is this with?
Customer value-based, cost-based, competition-based
No profits below this price. Cost-based
No demand above this price. Customer value-based
Define customer value-based pricing
What do customer-value perceptions set?
Give the 4 steps in value-based pricing
Name the 2 types of value-based pricing
Uses buyers’ perceptions of value, not the seller’s cost, as the key to pricing
The price ceilings
- Assess customer needs and value perceptions
- Set target price to match customer perceived value
- Determine costs that can be incurred
- Design product to deliver desired value at target price
Good-value pricing, value-added pricing
Define good-value pricing
Give and define the 2 types of good-value pricing
Define value-added pricing
Offering just the right combo of quality and good service at a fair price
- Everyday Low Pricing (EDLP) - Charging a constant, everyday low price with few or no temp price discounts
- High-Low Pricing - Charging higher prices on an everyday basis but running frequent promos to lower prices temporarily on selected items
The strategy of attaching value-added features and services to differentiate their offers and support higher prices (e.g. providing after-care service)
Define cost-based pricing
Describe cost-based pricing in 2 words
Give the 4 steps in cost-based pricing
What do costs set?
Setting prices based on the costs for producing, distributing and selling the product plus a fair rate of return for effort and risk
Product driven
- Design a good product
- Determine product costs
- Set price based on cost
- Convince buyers of product’s value
The price floor that the company can charge
Give and define the 3 types of costs
Name the 2 types of pricing
- Fixed costs (overhead) - costs that do not vary with production/sales level
- Variable costs - vary directly with the level of production - their total varies with the no of units produced
- Total costs - the sum of the fixed and variable costs for any given level of production
Cost-plus pricing, break-even pricing
Define cost-plus pricing
Give 2 reasons why markup pricing remains popular
Define break-even pricing, or the variation, target profit pricing
What does target return pricing use?
What is the ‘break-even’ point?
Give a negative of this method
Study graph!
The simplest pricing method, aka markup pricing, it is adding a standard markup to the cost of the product
- Sellers are more certain about costs than demand
- When all firms use this method, prices are similar and price competition is minimized
The firm tries to determine the price at which it will break even, or make the target profit it is seeking
The concept of a break-even chart, which shows total cost and total revenue expected at different sales volume levels. As price increases, demand decreases
Where total cost and total revenue meets
It fails to consider customer value and the relationship between price and demand
Define competition-based pricing
What must companies be under this strategy?
What is ‘deemphasizing’ pricing?
What must price decisions be?
Setting prices based on competitors’ strategies, costs, prices and market offerings (matching comp’s prices)
Certain to give customers superior value for the price
When companies match competitor’s price but add more value such as more services so that price is no longer important
Coordinated with product design, distribution and promotion decisions to form a consistent and effective integrated marketing program
What do companies often do in relation to positioning?
How do companies create non-price positions?
Define the demand curve
Generally, how are price and demand related?
Position their products on price, then tailor other MM decisions to the prices they want to charge
Deemphasize price and other MM tools
The relationship between the price charged and the resulting demand
Inversely - the higher the price, the lower the demand
Define price elasticity
” Elastic demand
” Inelastic demand (and e.g)
What has a strong impact on a firm’s pricing strategies? And 1 sentence on the GR
Rather than cutting prices, what do companies now do?
What is the key for companies?
How responsive demand will be to a change in price
If demand changes greatly with a small change in price
If demand hardly changes with a small change in price (e.g. gasoline)
The economic conditions. After the Great Recession, consumers rethought the price-value equation, tightening their belts and becoming more value conscious
Shifting marketing to focus on more affordable items in PM
To offer value for money
Give 2 examples of how price may affect other external factors
Name the 2 new-product pricing strategies
Define market-skimming pricing
Give the 3 conditions where market-skimming makes sense
Resellers, government
Market-skimming pricing, market-penetration pricing
(Aka price skimming) Setting high initial prices to ‘skim’ revenues layer by layer from the market
•Product’s quality/image must support higher price and enough buyers must want the product at that price
•Costs of producing smaller volume can’t be so high that they cancel the advantage of charging more
•Competitors should not be able to enter market easily and undercut the high price
Define market-penetration pricing
Give the 3 conditions where market-penetration works
Name the 5 product mix pricing strategies
Setting a low initial price to penetrate the market quickly and deeply to attract lots of buyers and win large market share
•Market must be highly price-sensitive so that low price produces more market growth
•Production/distribution costs must fall as sales volume increases
•Low price must help keep out comp and penetration pricer must maintain its low-price position
Product line pricing, optional product pricing, captive product pricing, by-product pricing, product bundle pricing
Define product line pricing and e.g
Define optional product pricing and e.g
Define captive product pricing and e.g. And give name and definition in services
Management must decide on the price steps to set between various products in a line, should take into account cost differences between products. E.g. starter, deluxe, premium
Offering to sell optional products with main product. E.g. pizza sides
Companies make products that must be used with main product. E.g. video games with console. Two-part pricing - Price of service is broken into a fixed fee plus a variable usage rate
Define by-product pricing and e.g
Define product bundle pricing and e.g
Name the 7 price adjustment strategies
Company seeks a market for the by-products produced in the generation of some products/services. E.g. meat
Sellers combine several of their products and offer the bundle at a reduced rate. E.g. fast food meals
Discounts, allowances, segmented pricing, psychological pricing, promotional pricing, geographical pricing, dynamic/online pricing
Define discount
Give and define the 4 types of discounts
A straight reduction in price
- Cash - Price reduction to buyers who pay bills promptly
- Quantity - Price red. to buyers who buy large volumes
- Functional - (Aka trade) - Offered by seller to trade-channel members who perform certain functions
- Seasonal - Price red. to buyers who buy out of season
Define allowances
Give and define the 2 types
Define segmented pricing
A reduction from the list price
- Trade-in - Price reds. given for turning in an old item when buying a new one
- Promotional - Payments/price reds. to reward dealers for participating in advertising and sales support programs
When the company sells a product/service at 2 or more prices, even though the difference in prices is not based on differences in costs
Give and define the 4 types of segmented pricing and e.gs
- Customer-Segment - Different customers pay different prices for the same product/service. E.g. adult/child tickets)
- Product-Form - Different versions of product are priced differently but not according to differences in costs. E.g. airplane seats
- Location-Based - Company charges different prices for different locations, even though the cost of offering each location is the same. E.g. restaurants
- Time-Based - Firm varies its price by the season, month, day or hour. E.g. matinee movie
Define psychological pricing
Define one aspect of psychological pricing and 1 e.g
Define promotional pricing
Give and define the 4 types of promotional pricing
When sellers consider the psychology of prices
Reference Prices - Prices that buyers carry in their minds and refer to when looking at a product. E.g. past experience
Companies temporarily price their products below list price and sometimes even below cost to create buying excitement and urgency
- Discounts - Reduction from normal prices to increase sales and reduce inventories
- Special-Event Pricing - Pricing differently in certain seasons to draw more customers
- Limited-Time Offers - (Flash Sales) - Create buying urgency and make buyers feel lucky to have got a deal
- Cash Rebates - Offered to consumers who buy the product from dealers in a specific time; manufacturer sends rebate directly to customer
Give 3 adverse effects of promotional pricing
Define geographical pricing
Define dynamic pricing. Where is it extremely prevalent?
Give 3 advantages of dynamic pricing
- Can create deal-prone customers who wait until brands go on sale before buying them
- Constantly reducing prices can erode a brand’s value in eyes of customers
- Can lead to industry price wars
Deciding how to price products for customer located in different parts of the country/world
Adjusting prices continually to meet characteristics and needs of individual customers/situations. Online
- Online sellers can mine their databases to gauge shopper’s desires, measure their means and instantly tailor products to fit shopper’s behavior and price accordingly
- Buyers can negotiate prices at online auctions/exchanges
- Online buyers benefit from wealth of comparison sites
