Lecture 10 Price

Question 1

Define price

Answer 1

The 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

What happens at a price floor?

Answer 2

There are no profits below this price

Question 3

What is the price floor based on?

Answer 3

Product costs

Question 4

What happens at a price ceiling?

Answer 4

There is no demand above this price

Question 5

What is the price ceiling based on?

Answer 5

Consumer perceptions of value

Question 6

What other factors can influence price?

Answer 6

Competition and other external factors such as:

• competitors’ strategies and prices
• marketing strategy, objectives and mix
• nature of the market and demand

Question 7

What does value-based driving use the perception’s of?

Answer 7

This uses the buyers’ perception of value rather than the seller’s cost

Question 8

How is value-based pricing driven?

Answer 8

Value-based pricing is customer driven

Question 9

How is cost-based pricing driven?

Answer 9

Cost-based pricing is product driven

Question 10

In value-based pricing what is the price set to match?

Answer 10

Price is set to match perceived value

Question 11

What are the stages in cost based pricing?

Answer 11

Design a good product
Determine product costs
Set price based on cost
Convince buyers of product’s value

Question 12

What are the stages in value based pricing?

Answer 12

Assess customer needs and value perceptions
Set target price to match customer-perceived value
Determine costs that can be incurred
Design a product to deliver desired value at target price

Question 13

What are the 4 main customer value-based pricing strategies?

Answer 13

Good-value pricing
Everyday low pricing (EDLP)
High-low pricing
Value-added pricing

Question 14

What is good-value pricing?

Answer 14

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

Question 15

What is EDLP?

Answer 15

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

Question 16

What is high-low pricing?

Answer 16

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

Question 17

What is value added pricing?

Answer 17

This attaches value-added features and services to differentiate the company’s offers and thus their higher prices

Question 18

Define cost based pricing

Answer 18

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

Question 19

What are fixed costs?

Answer 19

Costs that do not vary with production or sales level

Question 20

Give 4 examples of fixed costs

Answer 20

Rent
Heat
Interest
Executive salaries

Question 21

What are variable costs?

Answer 21

Costs that vary directly with the level of production

Question 22

Give 2 examples of variable costs

Answer 22

Raw materials

Packaging

Question 23

What are total costs?

Answer 23

These are the sum of the fixed and variable costs for any given level of production

Question 24

What does cost plus pricing do?

Answer 24

Adds a standard mark up to the cost of the product

Question 25

What are the benefits of cost plus pricing?

Answer 25

Sellers are certain about costs Price competition is minimised Buyers feel it is fair

Question 26

What is a disadvantage of cost plus pricing?

Answer 26

Ignores demand and competitor prices

Question 27

What is break-even pricing?

Answer 27

This is also known as target return pricing and involves setting a price to break even on costs or make a target return

Question 28

Define competition based pricing

Answer 28

This is setting prices based on competitors' strategies, costs, prices and market offerings

Question 29

What is target costing?

Answer 29

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

Question 30

What are two organisational considerations to make when considering price?

Answer 30

Who should set prices? | Who can influence prices?

Question 31

What relationship is important when setting prices?

Answer 31

The relationship between price and demand

Question 32

What are the 4 main types of market?

Answer 32

Pure competition Monopolistic competition Oligopolistic competition Pure monopoly

Question 33

What does the demand curve show?

Answer 33

The number of units the market will buy in a given period at different prices

Question 34

How are demand and price related?

Answer 34

They are inversely related | Higher price = lower demand

Question 35

Define price elasticity

Answer 35

This is a measure of the sensitivity of demand to changes in price

Question 36

What is inelastic demand?

Answer 36

This is when demand hardly changes with a small change in price

Question 37

What is elastic demand?

Answer 37

This is when demand changes greatly with a small change in price