07 - Pricing Flashcards
Definition: Price
The assignment of value, or the amount the consumer must exchange to recieve the offering.
Nature of price (4)
1) Subjective
2) Relative
3) Temporal (function of time)
4) Opportunity cost (always give up something due to there being more option).
Price is a tool in order to…, (6)
1) Enter markets or exit markets
2) Realize a specific ROI
3) Boost market growth –> reduce price to sell more
4) Increase market share
5) Position the product or create a certain image
6) Differentiate from competing brands and so on
Determinants of price (internal) (3)
1) Top Management & organizational considerations
2) Overall marketing strategy & objectives
3) Costs
Determinants of price (external) (6)
1) Economy
2) Nature of the market and demand
3) Customers - buyers, resellers, government, etc.
4) Competition
5) Social concerns
6) Governmental influences
Marketing strategy & objectives considerations (4)
1) Coordinating with other P’s
2) Revenue consideration
3) Penetration or skimming etc.
4) Positioning consideration
Types of costs (3)
1) Fixed costs
2) Variable costs (overhead)
3) Total costs (VC + FC)
Types of cost based pricing (2)
1) Cost plus pricing
2) Break-even Pricing
Economy’s impact on pricing (3)
1) Economic boom or recession
2) Inflation
3) Interest (price) rates
How to counteract the economical impact on pricing (5)
1) Cut prices –> low quality (permanent).
2) Temporary discounts that customers shouldnt get used to.
3) Focus on more affordable items in the product mix (cash cows).
4) Redefine value proposition (bundle products for a new, cheaper price).
5) Focus on non-price attributes instead
Definition: Inelastic demand
Leads to little change in price and little change in demand
Definition: Elastic demand
Leads to little change in price but a huge change in demand.
Customer based factors influencing price
Based on buyers’ perceptions of value rather than on the seller’s cost. Results in value-based pricing which consists of Good-value pricing and Value-added pricing
Pricing based on competition (3)
1) Price leadership (Competition always set prices a little lower than the leader)
2) Loss leader pricing (Okay with making a loss for a sale to sell more of the other items at the store)
3) Customary pricing (always offer the same price)
Types of Competition environments (4)
1) Pure competition
2) Monopolistic competition
3) Oligopolistic competition
4) Pure monopoly
Pricing influenced by social concerns (5)
1) Price breaks for economically disadvantaged (prescription medications)
2) Price breaks for a class of customers (ex: rent central appartments)
3) Price breaks for a class of diseases (ex: HIV/Polio/Small pox).
4) Price breaks for basic food (ex: milk, bread etc…)
5) Lower prices for LEDC’s
6) Fair pricing practices (ex: legal monopolies)
Pricing influenced by governments (7)
1) Taxes, tariffs and duties
2) Control of supply
3) Setting interest rates
4) Provision of subsidies or not
5) Price controls - price floors and ceilings
6) Regulations (ex: food safety)
7) Allowing or disallowing competition (ex: legal monopolies)
Pricing Strategies (15)
1) Cost plus pricing
2) Skimming price
3) Market penetration pricing
4) Prestige pricing
5) Psychological pricing
6) Price lining
7) Unit pricing
8) Customary pricing
9) Yield managment pricing based on demand
10) Every-Day-Low-Price
11) Price bundling
12) Captive pricing
13) Trial pricing or limited term or one time pricing
14) Dynamic pricing
15) Reference or list-price
Definition: Cost plus pricing
Price is set by adding a certain amount to the cost of goods (cost + profit = cost plus pricing)
Definition: Skimming price
Usually done with new product, price skimming sets a high price to skim maximum revenues layer by layer from the segments who are willing to pay the high price, resulting in fewer but more profitable sales.
Definition: Market penetration pricing
Setting a low price to attract a large number of buyers and a large market share.
Definition: Prestige pricing
Selling items at an unusually high price so that the customer is convinced that this is a luxury item and are prepared to pay that amount as a result.
Definition: Psychological pricing
Setting prices a cent lower usually, so that customers are convinced that the product is much cheaper. ($9,99).
Definition: Price lining
This approach makes prices seem more attractive when compared to others to propose a better value.
Definition: Unit pricing
Giving each individual unit its own price given on the weight, best-before date etc…
Definition: Customary pricing
Always offering the same price/keeping it constant.
Definition: Yield management pricing based on demand
Depending on the availablility of tickets, rooms or seats the price will be increased or decreased accordingly.
Definition: Captive pricing
Charging low prices for the core product but higher prices on the captive products (ex: razors & blades, printers & cartridges)
Definition: Trial pricing or limited term or one time pricing
Offering a cheaper price ony for one time or a limited time, or even offering it for a free trial.
Definition: Dynamic pricing
Involves constantly changing the price to respond to changing demand.
Definition: Reference or list-price
Prices are set to help customers evaluate offering price.
Illegal pricing strategies (5)
1) Bait-and-switch pricing
2) Price discrimination
3) Price fixing
4) Predatory pricing
5) Surge pricing
Definition: Bait-and-switch pricing
This involves luring the customers in with low prices and then switching them for higher priced items.
Definition: Price discrimination
Selling the same item at different prices for different customers.
Definition: Price fixing
Competitors colluding to collectively keep prices high.
Definition: Predatory pricing
Pricing a product low to undercut or kill competition.
Definition: Surge pricing
Price increases during exceptionally high demand.
Definition: Price Floor
The price point at which it is impossible to turn a profit
Definition: Price Ceiling
The price point at which there is no demand for the product
