Week 6 Flashcards
value
perceived benefits divide by price
pricing practices establish ‘reference value’ (internal and external)
profit equation
total revenue - total cost
value pricing
increasing product/service benefits while maintaining or decreasing costs
four approaches for selecting an approximate price level
demand-oriented approaches
cost-oriented approaches
profit-oriented approaches
competition-oriented approaches
demand-oriented approaches
skimming, penetration, prestige, price lining, odd-even, target, yield management
cost-oriented approches
standard markup, cost-plus, experience curve
profit-oriented approaches
target profit, target return on sales, target return on investment
competition-oriented approaches
customary, above at or below market, loss leader
skimming VS penetration pricing
skimming: firm tries to sell at a high price before aiming at more price-sensitive consumers
penetration: firm tries to sell the whole market at one low price
standard markup pricing
adding a fixed % to the cost of a product
cost-plus pricing
sum total costs of providing a G/S and add a specific amount to the cost to arrive at a price
competition-oriented approaches
Rolex is the most expensive watches you can buy - a clear example of above-market pricing
below-market price strategy
Walmart uses a below-market price strategy for many of its products
forecasting
determining customer demand, both quantitative and qualitative analysis are used to make projections
estimating demand and revenue
consider past sales, competitive sales, marketing support, consumer trends and behaviour
fixed costs
expenses that are stable and do not change with the quantity produced (salaries, mortgage)
variable cost
expenses that vary with the quantity produced and sold (materials/unit)
identifying pricing OBJECTIVES and constraints
expectations that specify the role of price in an organization’s marketing and strategic plans
identifying pricing objectives and CONSTRAINTS
pricing constraints are factors that limit the range of prices a firm may set (demand for the product class, product, brand, newness of the product)
other constraints
cost of changing prices and time period they apply, types of competitive markets & competitors’ prices
setting the final price
- select an approximate price level
- set the list or quoted price (one-price policy, flexible-price policy)
- make special adjustments to the list or quoted price (discounts)
- monitor and adjust prices
discounts
reductions from list price that a seller gives a buyer as a reward for some favourable activity
allowances
reductions from list or quoted price that a seller gives a buyer for performing some activity
geographic adjustments
price reflects transportation component
