Chp 11: pricing concepts + strategies Flashcards
define price
the overall sacrifice a consumer is willing to make to acquire a specific product or service
what does price sacrifice include
includes money paid to seller to acquire item, value of time necessary to acquire product, travel costs, taxes, shipping costs
5 points to price
1) Consumers judge benefits a product delivers against price and make purchase decision based on this overall judgement of value
2) Successful pricing - match product with consumer’s value perceptions
3) Firm can price products too high and too low (too low price can signal low quality, poor performance or other negative attributes). Too low price can cause retailers and manufacturers to lose money and negatively impact perceived positioning of product, even if it brings in new consumers
4) Consumers want high value, which may come with relatively high or low price depending on bundle of benefits product/service delivers
5) Price affects revenue
explain 5Cs
Successful pricing strategies built through 5 critical components
list 5Cs
1) company objectives
2) customers
3) costs
4) competition
5) channel members
C: company objectives explain
Each firm embraces an objective that fits with where mgmt thinks firm needs to go to be successful. Specific objectives reflects how firm intends to grow (by increasing profits, sales, decreasing competition, building customer satisfaction)
C: company objectives: 4 orientations
1) profit orientation
2) sales orientation
3) competitor orientation
4) customer orientation
define profit orientation
company objective that can be implemented by focusing on target profit pricing, maximizing profits or target return pricing
define target profit pricing
pricing strategy implemented by firms where they have a particular profit goal as their overriding concern, uses price to stimulate a certain level of sales at a certain profit per unit
define maximizing profits strategy
mathematical model that captures all factors required to explain and predict sales and profits, which should be able to identify the price at which its profits are maximized
define target return pricing
pricing strategy implemented by firms less concerned with absolute level of profits and more interested in rate at which their profits are generated relative to their investments, designed to produce a specific return on investment, usually expressed as % of sales
define sales orientation
company objective based on belief that increasing sales will help firm more than increasing profits
C: company objectives: 2 points to sales orientation
1) Can also set market share objective and set prices to have high market share. Can gain market share by offering high quality product at fair price
2) Implicitly for sales to increase, consumers must see greater value
define competitor orientation
company objective based on premise that firm should measure itself primarily against its competition
define competitive parity
firm’s strategy of setting prices similar to those of major competitors
C: company objectives: 2 points to competitor orientation
1) competitive parity
2) Value only implicitly considered, competitors may be using value as pricing strategy so copying strategy may provide value
define customer orientation
pricing orientation that explicitly invokes concept of customer value and setting price to match consumer expectations
C: company objectives: 2 points to customer orientation
1) Can make it easy for customers to pay, no haggle price structure to make purchase process simpler and easier thereby lowering overall price and increasing value
2) Can offer very high prices, state of the art products in full anticipation of limited sales to enhance firm’s rep and image and increase company’s value in mind of consumers
C: customers: what is this about
About understanding consumer’s reactions to different prices
C: customers: 2 things to consider
1) demand curves and pricing
2) price elasticity of demand
C: customers: define demand curve
shows how many units of a product/service consumers will demand during specific period at different prices
C: customers: define prestige products/services
those that consumers purchase for status > functionality
C: customers 3 points to demand curves
1) As price increases, demand decreases (downward sloping, can be linear or curved)
2) X - quantity demanded
3) Y - price
C: customers: explain prestige goods for demand curve
For these products, high price leads to greater status associated with it and greater exclusivity so high price leads to greater quantity sold up to certain point (demand curve upward sloping)