05 Pricing

Question 1

What is price?

Answer 1

Price is the overall sacrifice a consumer is willing to make to acquire a specific product.

Question 2

What does price include?

Answer 2

Price includes money that must be paid to the seller but it may also involve other sacrifices like time, travel costs, taxes and shipping costs.

Question 3

When is price crucial?

Answer 3

Price becomes crucial when consumers have little knowledge about certain products/brands.

Question 4

What is price-quality interferences?

Answer 4

The relationship between price and perceived quality: A higher price can lead to higher rather than lower demand.
This occurs when price is used as a signal that the product in question is of a high quality.

Question 5

What aspects of pricing can affect consumer psychology?

Answer 5

• Price-quality interferences.
• Reference prices.
• Price Endings.

Question 6

What are Reference Prices?

Answer 6

Any standard of comparison against which an observed price is compared.
- E.g.
• “Fairprice”
• Typical price
• Last price paid
• Usual discounted price

Question 7

What are Price Endings?

Answer 7

Just below prices affect us psychologically even though the actual price difference is insignificant (e.g. $9.99 vs. $10.00).

Question 8

What are the stages of setting the price?

Answer 8

1. Selecting the Pricing Objective.
2. Determining Demand.
3. Estimating Costs.
4. Analysing Competitors.
5. Selecting a Pricing Method.

Question 9

What are the different ways of adapting the price?

Answer 9

1. Price Discounts.
2. Promotional Pricing.
3. Initiating and Responding to Price Changes.
4. Differentiated Pricing.

Question 10

What are the strategies of pricing when selecting the pricing objective?

Answer 10

• Skimming pricing strategy.

- Penetration pricing strategy.

Question 11

What is the skimming pricing strategy?

Answer 11

Setting a higher

price to maximise profit margins.

Question 12

What is the penetration pricing strategy?

Answer 12

Setting a relatively low price initially to increase market share or maximise sales volume.

Question 13

Why is selecting the price objective important?

Answer 13

Pricing strategies usually change as the product passes through its life cycle.

Question 14

What occurs in the stage of determining demand?

Answer 14

The first step in estimating demand is to understand what affects price sensitivity.

Question 15

When are customers less price-sensitive?

Answer 15

• In general, customers are less price sensitive to low-cost items or items they buy infrequently.

Question 16

What are other moments when customers are less price-sensitive?

Answer 16

(1) There are few or no substitutes or competitors; (2) They perceive brand as having added value; (3) They are slow to change their buying habits; (4) Decision maker does not pay for product;
(5) Price is only a small part of the total cost of obtaining, operating, and servicing the product over its lifetime.

Question 17

What are the types of costs and levels of production during estimating costs stage?

Answer 17

• Fixed vs. variable costs.
• Total costs.
• Average cost.

Question 18

What occurs during the analysing competitors stage?

Answer 18

Comparison of firm’s offer to nearest competitor’s cost, prices and reactions (add or subtract value of offerings from their price based on comparison).

Question 19

What are the different pricing methods?

Answer 19

• Cost-based.
• Competitor-based.
• Value-based.

Question 20

What are the types of price discounts?

Answer 20

• Time discount.
• Quantity discount.
• Seasonal discount.

Question 21

What is a seasonal discount?

Answer 21

A price reduction to those who buy merchandise out of season.

Question 22

What is a quantity discount?

Answer 22

A price reduction to those who purchase large volumes.

Question 23

What is a time discount?

Answer 23

A price reduction to buyers who pay bills promptly.

Question 24

What are the types of promotional pricing?

Answer 24

• Loss leaders.
• Special event pricing.
• Special customer pricing.
• Cash rebates.
• Low-interest financing.
• Psychological discounting.
• Warranties.

Question 25

What is a warranty?

Answer 25

Agreement from the retailer or manufacturer providing customer assurance.

Question 26

What is Psychological discounting?

Answer 26

Sets an artificially high price and then offers the product at substantial savings.

Question 27

What is Low-interest financing?

Answer 27

Lowers your monthly payments.

Question 28

What is a cash rebate?

Answer 28

Offer given to consumers for a cash discount, when they purchase a consumer good.

Question 29

What is special customer pricing?

Answer 29

Sellers will offer special prices exclusively to certain customers.

Question 30

What is special event pricing?

Answer 30

Sellers will establish special prices in certain seasons to draw in more customers.

Question 31

What are loss leaders?

Answer 31

Goods or services offered at deep discounts (sometimes below cost) in order to attract customers to a store.

Question 32

What might one need to do when initiating and responding to price changes (step 3)?

Answer 32

• Anticipating consumer demand
• Anticipating competitive responses
• Responding to competitors’ price changes

Question 33

What are the different types of differentiated pricing?

Answer 33

• Customer-segment pricing.
• Product-form pricing.
• Channel pricing.
• Time pricing.
• Image pricing.

Question 34

What is image pricing?

Answer 34

Based on your brand and positioning in the market.

Question 35

What is time pricing?

Answer 35

Prices vary by season, day, or hour.

Question 36

What is channel pricing?

Answer 36

Products carry a different price depending on which channel the consumer purchases it from.

Question 37

What is product-form pricing?

Answer 37

Different versions of the product are priced differently, but not in proportion to their costs.

Question 38

What is customer-segment pricing?

Answer 38

Different customer groups pay different prices for the same product or service.