#8 PRICE Flashcards
PRICE
- Only element in mkt mix that directly generates REVENUE
- Most flexible mix element
- Highly visible tool
- Influences customer perceptions of value, affect their buying decisions
What drives the company’s overall approach to pricing?
Sales orientation
maximize volume
What drives the company’s overall approach to pricing?
Profit orientation
maximize profit or return
What drives the company’s overall approach to pricing?
Competitor orientation
relative to competitors
What drives the company’s overall approach to pricing?
Customer orientation
Maximize value
Botella de agua en concierto vs Oxxo
The 5 Cs of Pricing
- Company objectives
- Customers. econ
- Costs
- Competition
- Channel Members
The 5 Cs of Pricing
Company
Pricing is alligned with comany goals
premium image may set higher prices
The 5 Cs of Pricing
Customers econ
customers reactions to price changes
demand curve, price elasticity, customers income, susb or complements
The 5 Cs of Pricing
Costs
Production costs set a baseline for pricing decisions
Determine the price level at which sales cover production costs
The 5 Cs of Pricing
Competition
- Market Structure influences pricing
- Firms must adjust prices based on rivals actions
- Price Wars
The 5 Cs of Pricing
Channel Members
Manufactures, wholesalers and retailers affect pricing
manu adjust prices to achieve their OWN objectives
Pricing Methods and Strategies
Como las firms determinan el precio que le van a poner al product
Pricing Methods (5)
- Cost-Based Pricing
- Competitor-Based Pricing
- Value-Based Pricing
- Improvement Value Method
- Dynamic Pricing
Pricing Methods
Cost-Based Pricing
literal lo que me cuesta hacerlo, doesn’t reflec consumer demand or the competition
Pricing Methods
Competitor-Based Pricing
Adjust prices in response to competitors
les importa MARKET PRICES
Pricing Methods
Value-Based Pricing
- Based on perceived customer value
- what customers are willing to pay given the benefits they expect
- subjective, value varies @ customers
ex. Stanley cup beca tik tok
Pricing Methods
Improvement Value Method
- Sets prices based on the improvement value of a product
- Justifies higher prices for a superior product improvement
ex. Stanley cup w/more capacity
Pricing Methods
Dynamic Pricing
- Adjusts prices in real time based on demand
- Industries like sports or travel
ex. Uber rate $ at noon, than at 3am
Pricing Strategies
Long-term pricing strategies based on 5C’s
Apply across all products of the firm
Pricing Strategies (3)
- EDLP
- High/Low Pricing
- New Product*2
Pricing Strategies
EDLP
Everyday Low Pricing
Prices are kept consistently low to reduce consumers’ time spent price-comparing
- may associate EDLP w/lower quality
example: Walmart
Pricing Strategies
High/ Low Pricing
Prices alteration de arriba a abajo to attract deal-seeking & price- sensative customers
- May reduce brand loyalty due to consumer wait times 4 sale
Example: @@@@
Pricing Strategies
New Product Pricing Strategies (2)
- Price skimming
- Market Penetration Pricing
New Product Pricing Strategies
Price Skimming
a product is initially priced high and then discounted over time.
- Limits initial demand to allow time for production
Example: Apple Watch
New Product Pricing Strategies
Market Penetration Pricing
Introduces new product at a low price to build sales volume and market share quickly
- Requires high production capacity, may have low quality
Example: Streaming services offering low suscriptions
Pricing Strategies
Emerging Strategies (3)
- Shrinkflation
- BNPL
- Digital Payment
Pricing Strategies
Shrinkflation
Reduces product size w/out changing price
Example: snack foods
Emerging Strategies
BNPL
Buy Now Pay Later
-allows consumers to spread the cost of even small purchases over weeks or months
pago a meses
Emerging Strategies
Digital Payment
Increased demand for mobile and contactless payment options
Pricing Tactics
Short-term price adjustments focused on specific components of 5C’s
- 2 adress immediate competitive threats
Pricing Tactics (2)
- For consumers
- For channel Members
Pricing Tactics
Pricing Tactics for Consumers (5)
- Price Linning
- Price Bundling
- Leader Pricing
- Add-ons
- Price Reductions
Consumer Tactics
Price Linning
Selling different products at different prices
different hotel rooms rate
Consumer Tactics
Price Bundling
Offers multiple products at a reduced combined price
combos de fast food
Consumer Tactics
Leader Pricing
set the price of a popular product lower than its usual price to attract customers into the store.
Supermarket: cheap milk at the end
Consumer Tactics
Add-ons
Base price for main product and pay extra for complementary products
Plane ticket plus choose your seat or extra bag
Consumer Tactics
Price Reductions
Reduce final prices, driving sales & encouraging customer loyalty
Consumer Tactics
Price Reductions (4)
- Markdowns
- Quantity Discounts
- Coupons
- Rebates
Price Reductions
Markdowns
Rebajas
To clear out slow-moving or seasonal
Price Reductions
Quantity Discounts
Al mayoreo
Increases consumption and brand loyalty
Price Reductions
Coupons
Cupones
instant discount that stimulates purchase behaviour
Price Reductions
Rebates
Reembolsos
instant discount that stimulates purchase behaviour
Pricing Tactics
Pricing Tactics for channel members
Geographically for retailers or wholesalers
Legal and Ethical Aspects of pricing
to prevent unfair competition and protect consumers
Legal and Ethical Aspects of pricing
Deceptive or Illegal Pricing Advertising
- Puffery (best deals in town) is allowed
- specific false claims when untrue are illegal
Legal and Ethical Aspects of pricing
Deceptive Reference Prices
tactic used by retailers to make discounts appear more substantial than they actually are
- Inflated reference prices mislead consumers into believing they’re receiving a deal, which is harmful and often illegal.
de $100 a $60, es mucho descuento. Precio anterior $65
Legal and Ethical Aspects of pricing
Loss Leader Pricing vs. Loss Leader (Below-Cost) Pricing
- Loss Leader Pricing: The product is priced low but typically not below its cost.
- Loss Leader (Below-Cost) Pricing: The product is priced below its cost, intentionally losing money to boost customer traffic or sales of other items.
Beca Predatory Pricing/ Unfair Competition
Legal and Ethical Aspects of pricing
Bait and Switch
Advertising a low-priced item to attract customers, then claim limitted stock to push for higher-priced alternatives
TV súper baratas pero ya no les queda ese modelo, mejor una más grande
Legal and Ethical Aspects of pricing
Predatory Pricing
Setting Prices extremly low to eliminate competitors
- illegal beca restricts competitions
Example: WestJet airline, extreme low fares to eliminate competition
Legal and Ethical Aspects of pricing
Price Discrimination
Selling the same product to different buyers at different prices
- illegal @ people
- legal @ 4 competition
different fares for kids/seniors @ bus
Legal and Ethical Aspects of pricing
Price Fixing
Collusion among companies to control prices, reducing competition
- horizontal and vertical PF
Price Fixing
Horizontal PF
coordination between competitors to inflate the price and gain more
pharmaceutical companies agreed 2 set a price on a specific drug
Price Fixing
Vertical PF
Agreements along supply chain to control resale prices
luxury watch sets certain price 2 all retailers, preventing discounts
At this price, what level of sales is required to cover costs?
Break even point
Price Elasticity
How much the demand changes when we change the price $
Competition market structures (4)
- Monopoly
- Oligopoly
- Monopolistic competition
- Pure competition
Monopoly
Oligopoly
Monopolistic Competition
Pure Competition
Decommoditize through…
Differentiation
if your product exists in an intensely competitive category, you must elevate your offer and create reasons to buy USP
Formula:
Total Costs
(Total Fixed Cost + Total Variable Cost) x Number of Units.@@@@
TC = TFC (Total Fixed Costs) + TVC (Total Variable Costs)
TVC= Variable cost x Quantity
Formula:
Total Revenue
Price x Quantity
lo que entra a la firm
Formula:
Profit
Total Revenue - Total Costs
lo que se queda la firm
Profit Formula
P$ x Q - (FC+VC x Q)
Formula:
Break Even Point
Total Revenue = Total Costs
Formula:
Break-even Price $
P= (FC + VC x Q) / Q
Formula:
Break-even Quantity
Q= (FC+$0) / P-VC
