9: Pricing Flashcards
What is the broad definition of Pricing?
- The sum of the values that consumers exchange for the benefit of having and consuming/using an offering.
What 4 factors influence the buying decision depending on the price?
- Reference prices: vi har egne oppfatninger og prisreferansen som vi sammenligner produkter med for å avgjøre om de er billige eller dyre.
- Price-quality inferences: Når høy pris indikerer god kvalitet.
- Price images: Saturn f.eks. har fokus på at selger produkter billig og spiller veldig på det.
- Price endings: priser som ender på “rare” tall, som 299, 498 osv.
What is the price elasticity of demand?
What the change is sales is if the price changes by a certain amount.
What internal factors influence the pricing decision?
- Marketing strategy and goals.
- Marketing mix.
- Cost structure.
- Organizational structure.
What external factors influence the pricing decision?
- Market
- Competition
- Demand for offerings
- Other economic factors
What is the difference between market penetration and market skimming?
- Market penetration: the market is highly price sensitive and low prices stimulate market growth. Adobe reader gave away their basic product for free to the customers, and then they can buy extra feature.
- Market skimming: a sufficient number of buyers have high demand. High price communicates superior product image. Like Apples iPhone.
What are the tree major pricing strategies?
- Cost-based pricing
- Value-based pricing
- Competition-based pricing
What are the costs of a product?
Fixed + variable costs
Where do we find the break-even point?
Fixed cost / (selling price - variable costs)
What is the break even point?
It is where the expenses (costs) equal revenues at a given price.
What is the experience curve?
It is the decline in average cost with accumulated production experience.
- Over tid vil du lære mer om produksjonen og kunne senke kostnadene ut i fra erfaringer du gjør.
What are the limitations of cost based pricing?
- Risk of pricing oneself out of the market
- No demand response is taken into account
- No prices of competitors are taken into account
What is the main focus in Value-based pricing?
- To focus on the customers willingness to pay for a product.
- Target price is set based on customer perception of the value of an offering.
How to we calculate the profit-maximizing price?
- Profit increases as long as the additional revenue (marginal revenue) of an increased sales volume is higher than the additional costs (marginal costs)
- Altså: marginal revenues (U’) = marginal costs (K’)
- U = p * x
At what point in the graph do we find the profit maximizing price?
- Where the difference between costs and revenues are the highest.
