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Flashcards in Price Deck (21):
1

What is pricing?

- money charged for provision of good/service
- only element of 4P's which produces revenue directly
-should reflect perceived value of product

2

What is the price domain?

The range of values in which the price can be charged

3

What is the difference between perceived value and cost?

- customers will value a certain amount for a product based on what they perceive
- if they are clever, there won't be an actual difference between actual and perceived value
- the cost is the actual cost is creating it (GDP)
- at a minimum, cost is the minimum amount to break even
- at the top end, it is the perceived value
-imagine a scale from cost to perceived value
- another way to think of it is the price floor and price ceiling

4

what is the objective of pricing?

there are four objectives:
1. Survival: making money so your business can continue
2. current profit maximization (short term): it's short term as good pricing doesn't retain customers e.g. people not buying PS2 4ever
3. price-quality leadership: basically how much you're paying for and how much you get out of it
4. market share: maintaining or gaining market share

5

How do you determine the price?

Need to consider 5 things:
1. Organisational objectives
2. Competitors
3, Laws and regulations
4. Economic conditions
5. Demand

6

How is organisational objectives important in price determination?

- goals of company
- positioning (the image you want to keep in customer's head)
- profit targets

7

How are competitors important in price determination?

- competitive pricing
- high concentrated market (everyone tries to outdo each other)
- can lose customers if you don't remain competitive with your price

8

How are laws and regulations important in price determination?

- there may be a max price you can charge e.g. health care, medicare levy
- taxes: you need to pay taxes, which increases cost of product e.g. cigarettes which have bad externailities, so gov charges them, hence they're more expensive

9

How are economic conditions important in price determination?

-during economic booms, people buy more. Basically, during expansionary contraction gaps you can raise the price as everyone feels they're wealthier
- similar to contractionary output gaps, you tend to lower the price

10

How is demand important for price determination?

price vs demand curve, price is where P=Q. if there's high demand, you can charge more according to your supply

11

What is a pricing strategy?

How you price your products

12

What is customer value based pricing strategies?

Pricing based on the perceived value of the product so you can price it accordingly.
- good value pricing, price = perceived value
- value-added pricing: when the price goes up because value goes up e.g. Mac
- value pricing: price

13

What is a cost-based pricing strategy?

-called cost-plus pricing
- you take the cost of the product then you add some amount of money to meet a profit margin
Advantages:
- certainty of revenue (always covering the cost)
- minimise competition (if everyone focuses on objectives)
- perceived fairness: people think fair dinkum because they acknowledge company needs to make money

14

What is a relationship pricing strategy?

- based on strength on buyer/seller relationship (B2B marketing)
- the better the relationship, the more discounts/concessions
- encourages you to actively buy from them so can seem expensive at first

15

What is new product pricing?

two types-> market skimming and market penetration
- imagine a scale from top to bottom
-market skimming is about skimming the top of the market, charging the greatest price as you can possibly charge
- market skimming is basically declaring you are the premium provider
- it is risky if you are new, so market penetration might be more deal for new companies
- market penetration is when you charge the lowest price possible to increase your market share
-sometimes price

16

What is the price point pricing strategy?

- different price points available for a product e.g. dollar store, everything has a single price point
-organised according to product 'lines' (but are price lines)
- can work for different grades or qualities e.g. gem stones
- it's just for simplicity, no real thought over it. Outdated strat,

17

What is price elasticity?

- responsiveness of demand to changes in price
- three ways to measure:
1. inelastic, 1: e.g. luxury goods, non-necessities, if price changed too dramatically, people won't want to buy because it's not within their purchasing power

18

What type of costs are involved in making a product?

two main kinds:
1. Fixed cost: cost incurred that stays the same regardless of number of units sold e.g. rent
2. variable cost: something that changes depending on demand and level of operation e.g. electricity (have lots of machines means lots of electricity, but required to produce output)

19

What is mark-up pricing?

- another pricing strategy
- related to cost-plus pricing
- basically you take a product you have to sell and how much you have to increase the price by to get a certain profit
- can be mark-up on sales or costs

20

What is a mark-up on sales?

- what you start with is the sale (final) price
- then you figure out how much you have to mark-up tor reach that final price

21

What is a mark-up on cost?

- you start at the cost-price, then you add some more to reach a profit margin