Pricing Products and services (lecture #15)

Question 1

what is a price?

Answer 1

barter

Question 2

price is an indicator of _______

Answer 2

value

-ie value pricing

Question 3

What do you want price to do?

Answer 3

-to meet the needs and expectations of consumers

Question 4

what are some different pricing objectives (6)

Answer 4

‣Profit
‣Sales
‣Market Share
‣Unit Volume
‣Survival 
‣Social Responsibility

Question 5

what are the four types of competitive markets?

Answer 5

• Pure Monopoly
• Oligopoly
• Pure Competition
• Monopolistic Competition

Question 6

describe monopoly

Answer 6

• single supplier of a product
• exist because of barriers to entry into a market that competition
• monopolists have full control of price
• usually not an ideal situation
• government usually regulates it

Question 7

describe survival as a pricing objective

Answer 7

-during an economic crisis, might lower price to sell more goods allowing a company to stay afloat

Question 8

describe social responsibility as a pricing objective

Answer 8

might have social responsibility to price goods lower so those with lower income can afford

Question 9

why do monopolies arise

Answer 9

• Resources (a key resource required for production is owned by a single form)
• government regulation (government gives a single firm the exclusive rights to produce some good or service; gov-created monoplies)

Question 10

describe oligopoly

Answer 10

• firms sell identical or differentiated products
• entry and exit barriers
• non-price competition is common
• imperfect competition
• few major sellers
• interdependence
• rivals aware of what others are doing
• collusion

Question 11

describe pure competition

Answer 11

• many sellers (no single seller has an impact on price)
• products are homogenous
• individual firms must accept market price (price takers)

Question 12

describe monopolistic competition

Answer 12

• large number of firms
• each firm produces a differentiated product
• firms compete on product quality, price, and marketing

Question 13

What are the four pricing approaches?

Answer 13

1. cost-based pricing
2. value-based pricing
3. competition-based pricing
4. demand-based pricing

Question 14

describe cost-based pricing

Answer 14

under cost based pricing the marketer primarily looks at production costs as the key factor in determining the initial price

Question 15

what is the advantage of cost-based pricing

Answer 15

easy to implement as long as costs are known

Question 16

what is the major disadvantage of cost-based pricing

Answer 16

• doesn’t take into consideration the target market’s demand for the product
• this could present major problems if the product is operating in a highly competitive market where competitors frequently alter their prices

Question 17

describe value-based pricing (four step cycle)

Answer 17

1. estimation of customer perceived value
2. based on customer feedback, price range of product is decided
3. checks how much customer values the product
4. decide price for differentiated feature of product

Question 18

describe competition-based pricing

Answer 18

‣Setting prices based on competitors’ strategies and market offerings
‣When determining price, costs and revenues are secondary to competitors’ pricing
‣Examples: penetration pricing, going-rate pricing

Question 19

what are some other competition-oriented pricing approaches

Answer 19

‣Customary Pricing
‣Above- At- or Below- Market Pricing
‣Loss-Leader Pricing

Question 20

what are some approaches of demand-based pricing? (8)

Answer 20

‣Skimming Pricing
‣Penetration Pricing
‣Prestige Pricing
‣Price Lining
‣Odd-Even Pricing
‣Target Pricing
‣Bundle Pricing
‣Yield Management Pricing

Question 21

def, skimming strategy

Answer 21

• used for a distinctively new product which is to be purchased by a market that is not sensitive to the initial high price
• -an industrial marketer thereafter reduces the price to reach other market segments that are more price sensitive

Question 22

def. penetration strategy

Answer 22

• effective when:
  1. price elasticity is high
  2. strong threat exists from potential competitors
  3. opportunity cost exists to reduce the unit cost of production and distribution with increase in volumes

**is low-pricing

Question 23

def. prestige pricing

Answer 23

• sets higher than average prices to suggest status and high quality to the consumer
• many customers assume that higher prices mean better quality
• *have to remain consistent, can’t do anything that suggest/dilutes the prestige
• ex. luxury cars and watches

Question 24

def. price lining

Answer 24

• marketers establish a price floor and price ceiling and set prices in between
• allows for easy comparison
• *important because consumers like to compare, like to see where prices come from/what they relate to
• *this is important because you want to give customers things to compare so they don’t search for comparison elsewhere

Question 25

def. odd-even pricing

Answer 25

- technique which involves setting prices which all end in either odd or even numbers * *based on the principle that odd numbers convey bargains and even numbers convey quality

Question 26

def. target pricing

Answer 26

- based on target costing - target costing is a method of determining the cost of product based on target price that customers are willing to pay - a target price is determined by the marketing department before designing and introducing a new product - target cost= anticipated selling price - desired profit - if the product cost is above the target cost, then the product designer focuses on modification of design of the product so that it reduces the cost of product to target cost

Question 27

def. yield management

Answer 27

‣Attributed to airline industry, but used in cruise industry car rental industry, and other service industries ‣Essentially “revenue management” ‣Selling the right product at the right price at the right time ‣Considerations: price, cancellation policy, refund policy **want to maximize revenue and incite customers to buy early

Question 28

def. bundle pricing

Answer 28

offer a price for the purchase of several related units

Question 29

What five things violate the competition act?

Answer 29

``` ‣Price Fixing ‣Price Discrimination ‣Deceptive Pricing ‣Predatory Pricing ‣Resale Price Maintenance ```

Question 30

you should be in business not to ____________, but to ___________

Answer 30

not to kill competition, but to better satisfy customer needs

Question 31

def. price fixing

Answer 31

companies collude to keep prices artificially high

Question 32

def. price discrimination

Answer 32

supplier offers different price to very similar retailers (illegal) **legal loophole: big retailer gets volume rebate instead or "differentiates", gets distributor pricing instead

Question 33

def. deceptive pricing

Answer 33

consumer is deceived to believe that advertised price= actual price

Question 34

def. predatory pricing

Answer 34

- loss leader pricing | - prices product below its cost, then when competition is eliminated, jack up price

Question 35

def. resale price maintenance

Answer 35

- higher level participant in distribution tries to influence a member of a lower channel - --producer trying to get retailer to charge at a specific price