6 - Pricing

Question 1

cost-based pricing vs value-based pricing

Answer 1

cost-based: easy
value-based: hard

Question 2

main factors while setting prices

Answer 2

1. competition + elasticity
2. ease of comparison
3. preferences/WTP

Question 3

price dynamics

Answer 3

price penetration
price skimming

Question 4

price penetration

Answer 4

start w/ low price - increase over time

motivations:
- secure position
- gain market share
- switching costs
- entry deterrence
- network externalities

Question 5

price skimming

Answer 5

start w/ high price - decrease over time

applicable if:
- high consumer heterogeneity
- durable products
- requires high differentiation (ex: iPhone)

Question 6

consumer psychology

Answer 6

veblen goods - appeal increases if fewer people have it (demand increases w/ price)

price-quality inferences (associate higher price w/ higher quality) ex: wine

Question 7

case summary: cheese.io pricing

Answer 7

low-price strategy = miracle product
high-price strategy = risky investment

Question 8

cheese.io entry strategy

Answer 8

first need to establish trust in market w/ 1 cheesemaker to have
- prove concept at production level
- establish credibility
- avoid -ve WOM

Question 9

changing prices

Answer 9

netflix price increase (2012)
- drop in share price (40-10) - now its 400, how?
- after blockbuster
- value function of prospect theory

Question 10

value function of prospect theory

Answer 10

reference point = WTP (consumer expectation)

• consumers suffer more from losses than from gains (2:1)

Question 11

leaky paywalls

Answer 11

some articles are free before users have to pay for them

• retains flexibility
• allows for self-selection
• does not shut off search and social