Ch. 10- Pricing: Understanding and Capturing Customer Value

Question 1

1.. At what price point does an exchange take place?

Answer 1

Mkt is an exchange process (goods 4 $)
Price point where both the buyer and the seller are both going to feel better off after the exchange
(seller is ready 2 part w. product @ price where buyer is ready to part w. $ For product)

Question 2

2. At what price point do you achieve maximum profits?

Answer 2

marginal revenue = marginal cost (Mr= mc) - - usually used by big companies W. economist (difficult)

Question 3

3. Who determines what “satisfactory profits” are for an organization?

Answer 3

satisfactory profits - - Main person sets price (ceo, CFO) for small businesses - - simple

Question 4

4. What is the role of “opportunity cost” in the determination of a target ROI profit- oriented objective in pricing?

Answer 4

cost of not choosing the next best alternative
Determines Kind of return investment needed to give to have people want to invest in company
Pricing has to be a certrain way to be able to offer a better return investment than other companies
Target return on investment (Target ROI) - - stockholders of company put $ into company - - mid. difficulty

Question 5

5. How do you measure a company’s “market share”?

Answer 5

Relation/ratio/% between your revenue and total revenue of the industry

Question 6

6. What are the advantages of a “market share” pricing objective to a company?

Answer 6

As you increase mkt share, you weaken your competition
As you increase it, you also become mkt leader
As you increase, you’re selling and building more products ( economies of scale)

Question 7

7. What pricing objective is used on a temporary basis to sell off excess inventory?

Answer 7

Sales maximization, sales-oriented

Objective: to get ride of all inventory

Question 8

8. What is the objective of “status quo” pricing?

Answer 8

• Imitate pricing of mkt leader, want to keep status (old prices) the same.

Question 9

9. What is the Law of Diminishing Demand?

Answer 9

Quantity demanded goes down as price goes up

Question 10

10. What is elasticity of demand?

Answer 10

Deals w sensitivity of demand through price increases, how sensitive is your mkt due to price increases? How quick do they lose interest?
Elastic demand: lose customers VERY QUICKLY

Question 11

10. What is elasticity of demand?

Answer 11

Elastic demand: lose customers very quickly

Inelastic demand: lose customers very slowly

Question 12

11. What happens to Total Revenue when price is increased in an elastic demand situation? In an inelastic demand situation?

Answer 12

There Is a quick loss if elastic

•Total revenue went up, despite having less customers = inelastic

Question 13

12. What are the factors that affect elasticity of demand?

Answer 13

Availability of substitutes
Cost of product relative to total budget
Product differentiation

Question 14

12. What are the factors that affect elasticity of demand?

Answer 14

Availability of substitutes
Cost of product relative to total budget
Product differentiation

Question 15

13. What is the difference between a fixed and a variable cost?

Answer 15

Fixed cost does NOT change w units of production (mortgage)

Variable cost DO increase w units of production

Question 16

14. At what point do you achieve “break even” of costs?

Answer 16

total revenue = total cost

mr=mc

Question 17

15. What are the minimum costs that you must recover with your prices in a “survival” objective?

Answer 17

Employee/production cost

Question 18

16. What pricing policy would be consistent with a profit maximization objective?

Answer 18

high profits- high price- PRICE SKIMMING

Question 19

17. What pricing policy would be consistent with a market share objective?

Answer 19

low price= lots of mkt share= PENETRATION PRICING

Question 20

18. What are some of the bases for “professional services pricing”?

Answer 20

1. Going rate (what everyone else is charging)
2. What the traffic will bare ( how high can you go?)
3. VIP care

Question 21

19. What is “Odd-Even” pricing? What is “prestige pricing”?

Answer 21

Good value = odd even pricing

Prestige pricing= don’t use decimals or as many 0 (ex: 20,000=20k)

Question 22

19. What is “psychological discounting”?

Answer 22

Show % discount on sale of particular product, but it is based on the reduction of original price
(meaning that they were never sold @ og price)

Question 23

20. What is “markup” pricing? What is “keystoning”?

Answer 23

Price increases between each channel

Key stoning: when retailer doubles cost