Pricing

Question 1

3 major pricing strategies

Answer 1

1. Customer value-based pricing (customers gets ceiling, based on perceptions)
   Good-value pricing: right combo of quality and service at fair price
   Value-added pricing: attaching drives and fraud to differentiate the company and get higher prices
2. Cost-based pricing (costs set floors, based on products)
   Cost-plus pricing: markup based on margin
   Break-even: break even in costs, or get tarjeta return
3. Competition-based pricing (& other considerations of market and strategy)
   No matter what you charge, offer the higher value

Question 2

Setting price:

Answer 2

Customer-value perceptions
company costs
competitor strategies

Question 3

External/internal factors affecting firms’ pricing decisions

Answer 3

Internal (overall marketing strategy, objectives, marketing mix)

• often position in price and then tailor other mix decisions. target costing: pricing that starts with an ideal selling price, then targets costs that will ensure the the price is met (some may intentionally be high)
• non price positions are deemphasis of price to differentiate market offer to make it with the price
• usually set by execs not marketing, or separate pricing dept.

External (nature of 4 markets, demand, environment)

• pure competition: many buyers/sellers, no single huge effect
• monopolistic competition: many buyers and sellers in a range of prices with differentiated offers
• oligopolistic: few sellers, highly sensitive to each other’s pricing and marketing
• demand and price elasticity

Question 4

Major strategies for pricing new products

Answer 4

Price skimming: high price initially for most profit

Market penetration: low price for large market share

Question 5

Set prices that max profits from total product mix (5 mix pricing situations)

Answer 5

Product line: set across a line
Optional product: optional or accessories with main product
Captive product: may be used with main product (ie. print cartridges)
By product: low-value by-products to get rid of them
Product bundle: sold together

Product bundle pricing: combo products into a reduced price

Question 6

Companies adjust prices (7 ways) to take into account different types of customers and situations.

Answer 6

Discount and allowance: reduce to reward such as paying early or promoting the product (quantity, functional, seasonal) or (trade-in, promotional)
Segmented: allow for differences in customers, products, time, locations. Needs to be segmentable and show diff degrees of demand.
Psychological: reference prices and cues to signal a high or low price
Promotional: temporarily reduce prices to increase sales
Geographical: pricing for shipping can be Free on Board, zone, or uniform. Or, basing point vs freight absorption
Dynamic: to meet characteristics and needs of individuals (web)
International:

Question 7

Key issues related to initiating and responding to price changes

Answer 7

Initiating:
-cuts: excess capacity, falling demand, market share increase
-increases: improve profit but not price gouge. Help via communication and bundling.
Competitors are likely to act the smaller the number of firms, the more uniform the product, the more informed the buyers

Question 8

Price: amount charged for product or service, sum of all values customers give up to gain benefits

Answer 8

Only revenue generator in marketing mix