Lecture 8 Flashcards
(29 cards)
What is the Price value relation formula?
Value = Perceived benefits – Perceived price.
Why is price important from a marketing perspective?
Changes in price have a disproportionate effect on profits. Companies can only increase profit by either selling more, cutting costs or raising prices.
How is pricing affected by the digital world and how does this impact buyers and sellers’ abilities?
Buyers can: Get instant price comparisons, name their price and have it met and get products for free (e.g. apps).
Sellers can: Monitor customer behavior and tailor offers to individuals, give certain customers access to special prices and let customers decide the price.
How do companies price themselves and how do small and large companies differ?
In small companies the prices are set by the boss while large companies handle the price through product line managers or company divisions.
An ideal price should be based on the value of a company’s offering to the customer.
Buying decisions are based on consumers perceived prices rather than marketers stated price. Companies can also employ researchers, ask customers or use the expertise of company employees.
What is the function of reference prices and how can they be effectively implemented?
Consumers often compare an observed price with an internal price they remember or an external cue such as a “regular retail price”.
Sellers can also try to manipulate what counts as reference price and expensive items may be perceived less expensive when broken down into smaller parts.
How do high prices have both a positive function and a negative function?
The positive function of pricing is that consumers often use price as a compass for quality, and therefore a higher priced item will be viewed as being of higher quality.
How do price endings (decimals) impact price perception?
Prices with a 99-ending rather than a 00 ending tend to be perceived as cheaper and can even be perceived as bargains. Example 500 compared to 499
How does scarcity affect pricing and perception?
Products that are difficult to reach, obtain or only exist in limited quantity tend to be perceived as more valuable, attractive and desirable. Depending on views limited products are perceived as better.
What is the 6 steps in selecting a final price?
Selecting the price objective
Determine the demand
Estimate Costs
Analyze Competitor price mix
Select pricing method
Select the final price.
What is the 5 major price objectives (GAOLS!) to utilize?
Survival: Just to exceed cost.
Maximum current profit: Prices are set to maximize current profits based on estimated demand.
Maximum market share: Low prices to generate higher sales volumes, lower production costs and to gain market share.
Maximum Market Skimming:Prices start high and decline over time.
Product-Quality Leadership: Prices are set to reflect a leadership role in product quality, communicating premium quality through price.
Other objectives:Non-profit and public organizations may have different pricing objectives.
What is price elasticity?
The correlation between prices and demand. Little to no change = inelastic. High level of change = elastic.
How does prices affect demand?
Different prices will create different levels of demand with the exception being luxury domains.
What is the relationship between price and costs?
The price dictates the upper bound whereas the cost is the floor, the price thus needs to cover the costs.
How can cost be reduced?
Through accumulated costs, the fact that higher production numbers lead to a lesser cost per unit. Or as a result of the efforts of designers, engineers and buying agents to bring costs down.
How do you analyze competitor’s price?
If the competitor offers additional features, subtract the estimated value of those features from the competitor’s price. If the opposite is true and your product has additional features, then add the estimated value of those features to the competitor’s price.
What is the 3 major considerations in price setting?
Floor, Ceeling, Compass
Costs set a floor for the price. Competitors’ prices provide a compass for price and customers’ assessment of unique features establish the price ceiling.
What is the six common price setting methods?
(MU, RI, PV, VP, CM, AC,)
Markup pricing: builders or lawyers. Target
Return Pricing: Based on ROI
Perceived value pricing: Performance
Value pricing: Low cost with high value
Going Rate Pricing: Based on competitors.
Auction type pricing: Internet action.
What are the 4 important factors of the company and situation for selecting the final price?
Intermediares
Other market activities: must be based on brands quality and advertising relative to competitors.
Pricing policies: Must be consistent with company policy
Gain and risk sharing: Buyers may resist the price due to perception of risk.
Impact of price on other parties:How will distributors, dealers, suppliers, the sales force and competitors react to the price? Does it comply with law?
What is the reason for initiating price cuts?
Price cuts are usually implemented in an attempt to dominate the market through lower costs and gain market shares.
What is the risks with price cuts? (4 main traps)
Low quality trap: Customers assume low value.
Fragile market share trap: Low price buys market share but not loyalty.
Shallow pockets trap: Higher priced competitors match the price but can keep it longer because of “deeper pockets.”
Price war trap: Competitors set prices even lower than you causing a price war.
What is the reason for initiating price increase?
Price increases are often initiated due to cost inflation, sometimes through anticipation.
What is the downsides of initiating a price increase?
Customers might percept the increase as an act of unfairness and create customer dissatisfaction if the increase isn’t justified or communicated clearly.
What is the alternatives to increasing prices?
Shrinking the amount, substituting less expensive materials, reducing or removing features, using less expensive packaging, reducing variety (sizes and variants of product) and creating new economy brands.
What does the term “heuristics” mean?
It means mental shortcuts, and it describes the biases and short observations consumers use to make a perception. Example high price, high quality.
