Retiling and Pricing Flashcards
(20 cards)
What is pricing in a narrow sense?
It is the amount of money charged for a product or service
What is pricing in a broader sense?
sum of all values that customers give up to gain the benefits of having or using a product or service.
Why is pricing a key element?
Because its the only element in the marketing mix that directly generates revenue. It plays a key role in creating and capturing customer values, closely linked to overall strategy:
- Acts as a communicator to the customer
- Owns prices vs competitors prices
- Helps with positioning your offering in a way that the consumer will appropriate e.g. luxury goods
What is price elasticity of demand?
PED = % change in quantity demanded/% change in price
How sensitive are consumers to change in price?
How will a change in price affect quantity bought?
What max and min price of products?
Max = the extent (limit) of customers willingness to pay.
Min = covers the cost to produce the product, distribute and promote
What are the 3 generic ways to set a price?
- Production/selling approach - product -> costs -> price -> value -> customer
- Marketing approach - customers -> value -> price -> costs -> product
- Market approach - competitors -> price -> costs -> values -> products
What is cost based pricing?
Based on production/selling approach. Involves setting a price based on the costs of producing, distributing, selling the product plus a fair rate of return for the company’s efforts and risk
What are fixed costs?
remain the same regardless of level of production.
What are variable costs?
costs that vary with level of production. Simplest and popular form - cost plus pricing.
What is customer value based pricing?
Based on marketing approach. Involves carrying out a customer’s values assessment which measures - functional benefit, social benefit, self expressive benefits and financial aspects as well as other influencing factors.
What is competitor based pricing?
based on the market approach. It involves setting a price based on competitors strategies, prices, costs and market offerings.
Perceived customer value of firm offering vs competitors offerings? Current pricing strategies of competitor and how strong are current competitors?
Options a firm can use -> prices lower than competitors, price higher, price same ‘going rate’.
Competition based pricing might not reflect true customer value, price could ignore production costs, danger of price war…. could not be viable for small players e.g. Tesco’s Aldi’s price match.
What is a premium pricing strategy?
High price for good quality products e.g. Dyson, Apple Mac
What is a freemium pricing strategy?
businesses make features of a product free and then customer can pay more to ger better features of that e.g. Spotify has limited features with premium.
What is penetration pricing strategy?
Setting a low price for a new product to attract a large number of buyers and market share, must be highly price sensitive, low price must help to keep competition out.
What is skimming pricing strategy?
Price starts high, then reduces progressively often relates to high R&D costs e.g. new tech products, quality and image must support high price.
What is product line pricing strategy?
Car companies offering many different types of product lines e.g. BMW has many different series of car models and of these series is a branch of several different models (3 Series - M, Coupe, Touring)
What is bundle pricing strategy?
Products where you get a bundle at once and get multiple products included in the price e.g. Xbox One X Cyberpunk special edition.
What is captive product pricing strategy?
E.g. different types of razors, packaging is flashy to attract buyers
What is reference pricing strategy?
Involves setting a benchmark or standard price for products or services. This benchmark is often termed the reference price. It guides customers and businesses in the decision making process.
How do companies price products?
By looking into the costs, competitor prices or customer values. New products can enter the market using a status quo approach or by setting a price skimming or penetration pricing strategy.
There are a wide range of pricing strategies - choosing the right one depends on the orientation of the company. The choice of pricing strategy influences not only revenue, but also customer perceptions. (positioning)
