9.2 and 9.3 Other Internal and External Considerations Affecting Price Decisions and New Product Pricing Strat... Flashcards
How does a company’s overall marketing strategy, objectives, and mix influence its pricing decisions?
A company’s overall marketing strategy, objectives, and mix influence pricing decisions by dictating the target market and positioning, which in turn help determine the appropriate price level. Pricing decisions must be consistent with product design, distribution, and promotion decisions, forming an integrated marketing mix program.
What is target costing?
Target costing is a technique that reverses the usual process of product design, cost determination, and pricing. It starts with an ideal selling price based on customer value considerations and then targets costs to ensure the desired price is met.
How do non-price positions affect a company’s pricing strategy?
Non-price positions affect a company’s pricing strategy by
emphasizing differentiation of the marketing offer, making it worth a higher price.
In these cases, marketers focus on adding value to their products and services, justifying the higher price instead of competing on price alone.
What should marketers remember when setting prices?
Marketers should remember that customers rarely buy on price alone.
Instead, they seek products that offer the best value in terms of benefits received for the prices paid.
Pricing decisions should be part of an integrated marketing mix program that delivers superior value to customers.
How do organizational considerations affect pricing decisions?
Organizational considerations affect pricing decisions by determining who sets the prices within the company. This can be top management, divisional or product managers, salespeople, or pricing departments.
Different departments and roles can also influence pricing, such as sales managers, production managers, finance managers, and accountants.
What are the four types of markets recognized by economists?
The four types of markets recognized by economists are:
Pure competition
Monopolistic competition
Oligopolistic competition
Pure monopoly
What is the demand curve?
The demand curve is a graphical representation that shows the number of units the market will buy in a given time period at different prices that might be charged. It illustrates the relationship between price and demand, typically showing an inverse relationship—higher prices lead to lower demand, and vice versa.
What is price elasticity of demand?
Price elasticity of demand is a measure of how responsive demand is to a change in price. If demand hardly changes with a small change in price, it is considered inelastic. If demand changes greatly, it is considered elastic. Elastic demand often leads sellers to consider lowering prices, as lower prices can produce more total revenue, provided the extra costs do not exceed the extra revenue.
How do economic conditions affect pricing strategies?
Economic conditions, such as booms, recessions, inflation, and interest rates, affect pricing strategies because they influence consumer spending, consumer perceptions of a product’s price and value, and the company’s costs of producing and selling a product. These factors may lead companies to adjust their pricing strategies to maintain or improve their value proposition to consumers.
What are some potential long-term consequences of cutting prices and offering discounts?
Long-term consequences of cutting prices and offering discounts may include
lower margins,
cheapening a brand in consumers’ eyes, and
difficulty raising prices again when the economy recovers.
How can companies maintain value without cutting prices on their main-market brands?
Companies can maintain value without cutting prices on their main-market brands by
redefining the “value” in their value propositions,
developing “price tiers” to cater to different customer segments,
and focusing on offering great value for the money through product quality, features, and customer experience.
What external factors should companies consider when setting prices?
When setting prices, companies should consider external factors such as
the market and demand,
the economy,
resellers’ reactions,
government regulations,
and societal concerns.
These factors can influence pricing decisions and help strike a balance between short-term goals and broader societal considerations.
What is market-skimming pricing?
Market-skimming pricing, or price skimming, is a strategy in which companies set high initial prices to skim revenues layer by layer from the market. This approach allows companies to capture maximum revenue and profit margins from different market segments, especially for new or innovative products. Apple frequently uses this strategy for its products.
Under what conditions does market-skimming pricing make sense?
Market-skimming pricing makes sense under the following conditions:
The product’s quality and image must support its higher price, and enough buyers must want the product at that price.
The costs of producing a smaller volume cannot be so high that they cancel the advantage of charging more.
Competitors should not be able to enter the market easily and undercut the high price.
What is market-penetration pricing?
Market-penetration pricing is a strategy in which companies set a low initial price to penetrate the market quickly and deeply, aiming to attract a large number of buyers and win a large market share.
The high sales volume results in falling costs, allowing companies to cut their prices even further.
