Ch,11 Flashcards
pricing signals _______
quality
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True or false: pricing is an after thought
no, should be considered when doing the marketing plan
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price is the only element in the mix that generates _______
Revenue
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True or False: Pricing is one of the most challenging 4 P’s to manage.
Explain
true, because it is the least understood by managers
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What are the 5 C’s of pricing?
- Competition
- Costs
- Company objectives
- Customers
- Channel members
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What does the first C in price include?
Company objectives:
- Profit orientation
- Sales orientation
- Competitor Orientation
- Customer orientation
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What are the different kinds of profit orientation? and what does it mean?
Profit orientation is part of the first C (Company objectives)
When choosing price, companies might want to :
-maximize profits
- target return pricing (make profit at expected rate)
-target profit pricing(sell a certain price to hit a certain goal)
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What does sales orientation mean in the first C( company objectives)in pricing
Maximize our market share, generate our maximum amount of sells
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What does competitor orientation mean in the first C( company objectives)in pricing
Companies choose a price similar to our competitors. Similar price range as competitors, to send signal that they are of similar value
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What does customer orientation mean in the first C( company objectives)in pricing
Firms choose a price focusing on costumer’s expectations and match the price
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What is the second C in pricing and explain
Customers.
It is the most important C and focuses ion understanding the customer’s reactions to different prices.
There is two kinds of pricing: the psychological and economic.
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Explain 2 concepts of the psychological pricing.
Odd even pricing
- odd numbers convey a bargain image( conveys that you are making a good deal, usually in sales) ex: 6.99 - Even numbers: convey quality image. Ex:10, 50, 100
The framing of the price is important. It can affect how consumer perceive the price.
- ex: Item A sells for $1,200 dollars with an instant cash rebate of $200 dollars
Item B sells for $800 dollars with an additional courtesy fee of $200 dollars.
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What is the relationship between the demand curve and pricing
- Demand increases as price decreases
- In prestige products: have some kind of curve. As demand increases, price increases, but also as demand decreases price decreases.
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What is price elasticity of demand and what is its formula?
Measures how changes in a price affect the quantity of the product demanded; specifically, the ratio of the percentage change in quantity demanded to the percentage change in price.
price elasticity =% change in quantity demanded / %change in price
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What is the income effect?
Refers to the change in the quantity of a product demanded by consumers because of a change in their income.
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What is the substitution effect
Refers to consumers’ ability to substitute other products for the focal brand, thus increasing the price elasticity of demand for the focal brand.
The greater the availability of substitute products, the higher the price elasticity of demand for any given product
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What is elastic
Refers to a market for a product or service that is price sensitive; that is, relatively small changes in price will generate fairly large changes in the quantity demanded.
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Inelastic
Refers to a market for a product or service that is price insensitive; that is, relatively small changes in price will not generate large changes in the quantity demanded
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what are two factors influencing price elasticity of demand?
substitution effect and income effect
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What is the third C of pricing?
Costs
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What are the 3 types of costs
variable costs: vary with production volume
fixed costs: unaffected by production volume
total costs: sum of variable and fixed costs
What is the break even analysis?
A technique that enables managers to examine the relationship among cost, price, revenue, and profit over different levels of production and sales.
What is the break-even point
The point at which the number of units sold generates just enough revenue to equal the total costs; at this point, profits are zero.
if the break-even cost is too high, sometimes they will ______
they’d still go ahead with the project or business. Sometimes we might lose money on the short-term to gain more in the long-term( it is more beneficial in the long term)
What is the fourth C is pricing?
Competition
What are the 4 types of competition
- Monopoly: one firm controls the market
- Monopolistic competition: Many firms selling differentiated products at different prices
- Oligopoly: A handful of firms control the market
- Pure competition: many firms selling commodities for the same price(supply and demand set the prices)
What is the 5th C in pricing?
Channels members
Explain the 5th C: Channel members
Manufacturers, wholesalers and retailers can have different perspectives on pricing strategies. So manufacturers need to protect themselves from grey market transactions. foe example, can have an agreement that the retailer can’t sell below a certain price.
What is a grey market
Employs irregular but not necessarily illegal methods; generally, it legally circumvents authorized channels of distribution to sell goods at prices lower than those intended by the manufacturer
What are three pricing strategies?
- cost-based
- competition-based
- value-based
Describe the cost-based method
Determines the final price to charge by starting with the cost, without recognizing the role that consumers or competitors’ prices play in the marketplace.
All costs calculated on a per unit basis
Describe the competitor based method
Price is decided by ‘‘copying’’ the price of competitors. Settling similar prices to competitors signals that products are similar. Settling higher pries, signals that the prices are better than competitors.
Describe the value-based method
Consists of setting prices that focus on the overall value of the product.
Within the value-based method, what are the improvement value method and the cost of ownership method?
improvement value:
Represents an estimate of how much more (or less) consumers are willing to pay for a product relative to other comparable products.
cost of ownership method:
Determines the total cost of owning the product over its useful life. (ex: solar panels)
What are the psychological Factors Affecting Value-Based Pricing Strategies
- everyday low pricing: Promise that our prices are the lowest compared to competitors.
- high/low: relies on the promotion of sales, prices are temporarily reduced
- new product pricing: price skimming and market penetration pricing
market penetration pricing.
setting the initial price low for the introduction of the new product or service, with the objective of building sales, market share, and profits quickly
Have to make sure we have enough capacity to satisfy the demand.
Need to convince consumers that it is a product of quality
What is price skimming
Understand the idea there are different groups with diff levels of motivation. Start with a high price, and then lower the price gradually over time. (extracting maximum value for different groups)
What are the 3 consumer pricing tactics?
- price lining
- price building
- leader pricing
What is price lining?
Establishing a price floor and a price ceiling for an entire line of similar products and then setting price points in between to represent distinct differences in quality
Allows customers with different incomes to buy their cars. Attracts a wide variety of customers
What is price building
selling more than one product for a single, lower price than the items would cost sold separately
- Bundles: Sell multiple products together (with each other)
- Focal product: One product in the bundle stands out and costumers want to buy it, so buy the overall bundle.
What is leaser pricing
Enticing consumers into the store with the popular aggressively priced item and hoping they will pick up other items while shopping
Tactic by aggressively pricing and advertising a regularly purchased item, often priced at or just above the store’s cost.
What are the 3 consumer price reductions
-Markdowns: An integral component of high/low pricing strategy
Reductions retailers take on the initial selling price of the product or service.
- coupons %rebates:
- quantity discounts for consumers: The more you buy the cheaper the unit cost
What are the 5 business-to-business pricing tactics?
- Seasonal discounts (an additional reduction offered in advance of normal buying season)
- cash discounts (reduction if buyer pays before the end of discount period)
- allowances (discount offered in return for specific behavior)
- quantity discounts (reduced price according to the amount purchased)
- uniform delivered ( shipper charges one rat no matter where the buyer is)versus geographic pricing (different prices depending on geography)
What is the difference between cumulative quantity discount and non-cumulative quantity discount?
Cumulative: Period of time. Ex: the total amount that you purchased on the spring season, you’ll get a total discount. Customers are more loyal
Non-cumulative: Whatever you purchased today, we’ll give you a discount for that
What are the 4 Legal& ethical aspects of pricing
- Deceptive or Illegal Price Advertising
- Predatory Pricing
- Price Discrimination
- Price Fixing
Deceptive or Illegal Price Advertising
name the 3 categories
- deceptive reference prices: Say that before it cost this, and now they have a discount, but the original price was never true
- loss leader pricing: Selling things at a loss
- bait & switch: whatever you are advertising, customers should buy it without you persuading them( ex: this tv is bad, this one is better)
Predatory Pricing
When a firm sets a very low price for one or more of its products with the intent to drive its competition out of business
Price Discrimination
When firms sell the same products to different resellers (wholesalers, distributors, or retailers) at different prices
Price Fixing (vertical and horizontal price-fixing)
The practice of colluding with other firms to control prices
- Vertical price-fixing: Occurs when parties at different levels of the same marketing channel (e.g., manufacturers and retailers) collude to control the prices passed on to consumers.
- Horizontal price-fixing: Occurs when competitors that produce and sell competing products collude, or work together, to control prices, effectively taking price out of the decision process for consumers.
