unit 9- pricing Flashcards
what is revenue? profit?total costs?
- P: revenue - expense
- R: price charged to customers multiplied by the number of units sold
- total costs=( VC x quantity produced (units))+ total fixed cots
cost-oriented pricing? (Other name)?
- cost plus pricing
- org applies a predetermined markup to its CST to make and ignores customers’ willingness to pay
why is cost-oriented pricing seen a lot?
- cost is easy to measure
- easy to justify to stakeholders
- simplifies the pricing process
what is value-oriented- pricing?
- basing the price of a product on its value to its chosen customer
what are the two key elements in value-oriented pricing?
- a value orientation: focuses on the economic value created by an orgs pdt for a given customer - could be from other factors than just money
- set of processes to capture a portion of that value for that firm
what are the parts of a value orentated pricing thermometer?
- True economic value (TEV):
- Perceived value (PV) :
- product price
- cost of goods sold: the lowest point we’d be willing to price a product
what is TEV? firmula ?
value fully informed buyer would or should ascribe to the product (different by customer segments)
- cost of next best alternative + value of performance differential*
*= what makes a product stand out because it performs better or offers something unique that others don’t.
what os perceived value?
the value of the prdt as perceived by the customer and influenced by marketing efforts
- generally PV is less than TEV because the potential buyer is unaawarre of the relative benfts of the new product
what is the formula for customers’ incentive to purchase? and firms’ incentive to sell?
customers’ incentive to buy= perceived value - price
forms= price - cost
what are important points for value-oriented pricing?
- within the rnage of TEV nad COGS the price that is set will determine the firms and potential buyers incentive to make the sale happen
- value is likely to vary across customer segments
- pricing must work in concert with other Ps (prodccutpace and promotion)
why can TEV and PV vary across customers?
tastes
nature of use
intensity of use
competition
what can price customization let firms do?
- control the quality of prices
- set price based on buyer characteristics (indv living inflorida can get disney cheaper than indv in other state) or transaction characteristics
- manage the product line offering `
price customization what is the kind of pricing in it?
- dynamic pricing (general flow ) or yield management system (adjusting price realt time demand)
- Dynamic pricing is about adjusting prices based on demand and other factors in real-time, like when ride-sharing services charge more during peak times.
- Yield management is a broader strategy for maximizing revenue by managing capacity and pricing, commonly used in industries like airlines and hotels.
what is the demand curve?
representation of the quantity demanded of a pdt/s at least theoretically every price point that product could be offered in the marketplace
what are the x and y axis in a demand curve? slope?
- y-axis: price in dollars: at any point we can map out how much in the market place of that product is demanded at each one of those prices
- x-axis: qunaity demanded: assumes the rate of change stays constant down the line
- slope: is downward sloping for normal goods because as price increases the demand for that good (normal) should decrease
