Session 2 - Value Based Pricing Flashcards Preview

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Flashcards in Session 2 - Value Based Pricing Deck (18)
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1
Q

Exchange Value Model

A

assessing a product´s value to customers

2
Q
  1. Utility Value
A
Consumer utility = utility gain (economist)
Value = total saving, monetary gains, satisfaction
Upper Boundary (can be infinite)
Consumer Surplus = difference between price &value
3
Q
  1. Reservation Price
A

price over which nobody would buy the P/S
level at which demand =0
bottom line - ask an expert

4
Q
  1. Exchange value
A

= comparable alternative (reference price) + differential value
price at which average customers are even
(precio maximo medio que pagarian los consumidores)
always = reference (bottom line) + any additional quality features of new P&S (+/-)
MIDDLE BOUNDARIES

5
Q
  1. Reference Price
A
price of C. best alternative
Factors: 
- C. develop a reference
- fairness
- price last paid of similar item
- competitor
- substitute
worst case = variable cost unitary
6
Q
  1. Referential Value
A

setting the price as high as possible (no direct competitor) - but from buyer´s point of view they will always take a reference

7
Q
  1. Differential Value
A

+ (adds benefits)
- (cost saving, inferior good (looses in value))
value depend on situation

8
Q
  1. Lower Boundaries

Marginal Cost

A

If price is set lower that VCu –> close business (return is not enough to ver activities)

9
Q

Inferior Goods

A
inferior alternative ( e.g. lower cost but also lower quality)
price must lie between VCu (not reference price) and exchange value (lower than reference price - since features you are offering are lower than reference - competitors)
10
Q

B2B - Direct Estimation

A

ask directly about exchange value can be very subtly

ask expert about max- wtp makes possible to have a rough estimation about exchange value

11
Q

Costs - overview

A

fixed cost -doesn´t change with Volume
VCU = Q* unit of variable cost
Average VCu/fixed cost = (TV/TF)/ total units
Average Marginal cost = change it Total cost/ change in volume

12
Q

Price = marginal cost

A

NO Break Even

because you have not cover fixed cost (you are break even, when ALL (Total) Costs is cover by the price)

13
Q

Price < Marginal Cost

A

we consider MC as VCu (and thus run out of business ) because this means you price won´t cover the firms operations

14
Q

Optimal Price
Cost Calculations
Service

A

more realistic to use Total Cost instead of VCu as bottom line (VCu is rather irrelevant)

15
Q

Optimal Price
Cost Calculation
Start-Up

A

only using VCu - would only max. profit in the ST
(one normally uses Total cost as Variable in the LT - since it makes more sense to look for an optimal price which hold in the LT not ST only)

16
Q

Optimal Price
Cost Calculation
Total cost instead of VCu

A

use total cost unitary (taking V+FC) at break-even point, since to calculate TC you need to fixed a variable cost (which will lead to a iterative process)

17
Q

Break Even Point

in units

A

Fixed Cost/ (Price-Variable cost = contribution margin)

18
Q

Marginal Cost

A

= cost of producing an additional units (so in theory it relates to a variable (not total cost))
However, in the LT you can take the Total cost within the marginal cost calculation calculation as everything is variable)