Flashcards in Price Deck (21):
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
What is the price domain?
The range of values in which the price can be charged
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
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
How do you determine the price?
Need to consider 5 things:
1. Organisational objectives
3, Laws and regulations
4. Economic conditions
How is organisational objectives important in price determination?
- goals of company
- positioning (the image you want to keep in customer's head)
- profit targets
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
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
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
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
What is a pricing strategy?
How you price your products
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
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
- 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
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
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
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,
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
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)
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
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