Ch. 10 - Pricing Flashcards
What is price?
The amount of money paid by a buyer to a seller for a particular product or service. It INCLUDES PAYMENT TERMS.
What is evaluated price?
The price of the offering after all costs associated with this offering are evaluated.
What is the difference between value-based pricing and cost-based pricing?
Cost-based: the determination of price by figuring costs of offering a product or service then adding a standard percentage profit.
Value-based: pricing based on customers’ perceived value (must be consistent with the marketer’s strategy - this can be difficult to establish).
What is a total offering?
An offering that provides a complete solution to the buyer’s needs.
What are the six elements of a total offering?
- product
- service
- image
- availability
- quantity
- evaluated price
A customer buys if ______ (equation)
The perceived value of the product - product price > 0
Value = benefits – cost
What is contribution margin?
Contribution margin is the difference between ongoing attributable costs and ongoing attributable revenue.
What is the contribution margin formula?
total contribution to fixed costs, indirect costs, and profit = [(selling price – unit variable cost) x the quantity sold] – other attributable costs.
Give some examples of the strategic purposes of pricing
- achieving the target level of profitability
- building goodwill or relationships
- penetration of a new market or segment
- keeping competitors out of an existing customer base
Give some examples of the tactical purposes of pricing
- winning business of a new, important customer
- penetrating a new account
- reducing inventory
- keeping business of disgruntled customers
- encourage customer trial
- encourage purchase of complementary product
What is the four step process for evaluating a price attack from competitors?
- is there a response that would cost less than the preventable sales loss?
- If you respond will the competitor be able to simply reduce their prices again?
- Will the multiple responses that may be required to match the competitor’s price still cost less than the avoidable sales loss? If no:
- Allow the competitor to win where it is least damaging to profitability - Is your position in other markets at risk if the competitor increases market share?
What is market skimming?
Charging relatively high prices to take advantage of early adopters’ strong desire for the product
What is market penetration?
Charging relatively low prices to entice as many buyers as possible into the early market.
Skimming is used when:
- Perception of high value reflects high price
- market is somewhat inelastic
- sustainable market advantage
- competitive market entry is low or blocked
- production levels are profitable, even at low volumes
Name four methods for managing pricing tactics
- bundling
- discounts and allowances
- initiating price changes
- competitive bidding
what are the negotiation stages and substages of B2B sales?
- preparation
1a. data collection and analysis
1b. determination of negotiation strategy - information exchange
2a. elicit information not yet obtained
2b. test hypothesis about nature of situation - engage in negotiation
3a. opening
3b. discussing positions
3c. concessions
3d. closing - obtain commitment
