7: Pricing Strategy Flashcards
the act of determining the price of a product or service
Pricing
the set amount customers have to pay to purchase a product
Price
4 factors affecting pricing decisions
- Product cost and operating expenses
- Competitors
- Economic conditions
- Government laws and regulations
factor should involve the cost in manufacturing goods or offering services; includes raw materials, direct labor, and factory overhead
Product Cost
factor considering the cost of running the business; includes rent and utility, office supplies, marketing expenditures
Operating Expenses
Consumers sometimes based their purchase decision solely on the price of the product. If a competitors offers the same product with the same benefits at a lower price, the consumer would patronize the competitors product. This often leads to a price war.
Competitors
factor that has a very strong impact on consumer purchases and affects pricing decisions with which companies may choose to do cost-cutting methods to manufacture products at a lower cost while sacrificing the quality
Economic Condition
to sacrifice the quality of the product in order to manufacture them at a lower price
Cost-cutting
Factors that consider the imposed price by the government that changes through laws and regulations
Government Laws and Regulations
lowest price where the company can earn profit
Price floor
maximum price that customers are willing to pay for a given product
Price Ceiling
recognizing the price floor and price ceiling
General Pricing Strategies
Products are priced based on the maximum price that customers are willing to pay for the benefits that they will get out of the product
Value Based Pricing
Price based on the cost of manufacturing, distributing, promoting, and selling where a profit figure is added to the cost of the goods that decides their selling price
Cost Based Pricing
Prices based on the competitor’s price
Competition Based Pricing
