07 Pricing

Question 1

Objectives of pricing, price = Tool in order to ..? (6)

Answer 1

1) enter markets or exit markets
2) realize a specific ROI (return of investment)
3) boost market growth
4) increase market share
5) position the product or create a certain image (Gucci vs. Dollar Store)
6) Differentiate from competing brands and so on

Question 2

Internal factors that determine prices (3)

Answer 2

• top mangement & organisational considerations
• overall marketing strategy & objectives
• cost considerations

Question 3

External factors that determine prices (6)

Answer 3

• economy (boom or recession, inflation, interest rates)
• nature of the market and demand
• customers (buyers, sellers, government…)
• competition
• social concerns
• governmental influences

Question 4

Top mangement & organisational considerations definition

Answer 4

Company objectives: long term vs. short erm
Company size: small (boss sets price), medium or large (devisions and department might), pricing departments (e.g. airline business)

Question 5

Overall marketing strategy & objectives (4)

Answer 5

• coordinating with the other 4Ps
• revenue considerations
• penetration or skimming etc
• positioning considerations
• positioning might also be non-price related

Question 6

Cost considerations based on:

Answer 6

costs of producing, distributing, selling the product + fair rate of return for effort and risk

Question 7

Types of costs (2)

Answer 7

1) fixed costs (overhead) +
2) variable costs (gas, food)
= total costs

Question 8

Types of cost based pricing (2)

Answer 8

• cost plus pricing

- breakeven pricing (not making any money)

Question 9

Nature of Marketing and Demand: Price Elasticity

Answer 9

Normal products: inelastic: demand increases as price decreases
Prestiqe produtcs: elastic: demand increases as price decreases, demand decreases as price decreases

Question 10

Common pricing strategies/tactics in practice (15)

Answer 10

1) cost plus pricing = cost + profit (home construction)
2) skimming price (setting a high price to skim maximum revenues layer by layer from the segments willing to pay the high price, company makes fewer but more profitable sales)
3) market penetration pricing (setting low price to attract large number of buyers and a large market share)
4) prestige pricing (ex. chanel)
5) psychological or odd-even pricing (19,99)
6) Price lining (gas prices: 1,09, 1,19, 1,29)
7) unit pricing
8) customary pricing
9) yield management pricing based on demand
10) every-day-low-price (ELP) - no sales, ex. Walmart
11) Price bundling (get a game with the console)
12) Captive pricing (low prices for the core product but higher prices for captive products (razors & blades)
13) trial pricing or limited term or one time pricing (one day only)
14) dynamic pricing (constant adjusting of prices to respond to changing demand (shares))
15) reference or list prices (MSRP) (Prices to help customers evaluate offering price)

Question 11

Legal issues in pricing (5)

Answer 11

1) Bait-and-switch pricing (luring customers with low prices and switching them for higher priced items)
2) price discrimination (legal only for volume discounts - selling same items for different prices to different customers)
3) Price fixing (competitors colluding to keep prices high (ex. airline industry)
4) predatory pricing (pricing low to undercut or kill competition)
5) surge pricing (price increases during exceptionally high demand, ex uber: during bad weather)