Ch. 9 - Pricing

Question 1

Price

Answer 1

The amount of money charged for a product/service

Question 2

What differentiates price from the other elements of the marketing mix?

Answer 2

Price is the only marketing mix element that produces revenue (the other 3 cost money to execute), and price is the most flexible element (takes little time to change if needed)

Question 3

Internal Factors influencing Pricing

Answer 3

• Cost
• Objectives
• Marketing Mix

Question 4

External Factors influencing Pricing

Answer 4

• Customers
• Nature of Market and Demand
• Competition
• Macro Environment

Question 5

Cost Based Pricing

Answer 5

Pricing based on costs for producing, distributing, and selling the product plus a fair rate of return. Includes standard markup and break-even pricing

Question 6

Standard Markup

Answer 6

Adding a standard markup to the cost of a product

Question 7

Break-Even Pricing

Answer 7

Setting price to break even on the costs of making and marketing a product

Question 8

Break-Even Point

Answer 8

Break-Even Point (in units) = Fixed Cost / (Unit Price - Unit Variable Cost)

Question 9

How should companies price products based on their marketing objective?

Answer 9

• If a company wants market share: low price
• If a company strives to be a quality leader in the market: high price
• If a company wants to optimize profit: somewhere in between

Question 10

True or False: Price decisions can be made independently from product design, distribution, and promotion decisions.

Answer 10

False. Price decisions must be coordinated with product design, distribution, and promotion decisions to form a consistent and effective marketing program.

Question 11

Skimming Pricing

Answer 11

Set price high to reap maximum profit from innovators and early adopter segments. Gradually lower price over time

Question 12

Penetration Pricing

Answer 12

Set price low to gain maximum market share

Question 13

Product Line Pricing

Answer 13

Company offers a range of products or services at different price points with each product having a distinct set of features and benefits

Question 14

Product Bundling

Answer 14

Selling a combination of products together in a group at a reduced price

Question 15

Optional Product Pricing

Answer 15

Pricing optional or accessory products sold with the main product

Question 16

Give an example of product line pricing

Answer 16

E.g. MacBook line (MacBook Air, MacBook Pro 13-in., MacBook Pro 14 in., etc.)

Question 17

Give an example of product bundling

Answer 17

E.g. Video Game Console Bundles (Spider-Man PS4 Bundle includes a console and a game together at a reduced price)

Question 18

Give an example of optional product pricing

Answer 18

E.g. Car manufacturers may charge extra money for different car colours

Question 19

Give an example of captive-product pricing

Answer 19

E.g. Electric toothbrush (the brush heads needed to use the toothbrush are expensive!)

Question 19

Captive-Product Pricing

Answer 19

Pricing products that must be used with the main product. The main product can be sold at a lower price as the accessories needed are very profitable

Question 19

Channel Considerations

Answer 19

Involves a company ensuring that their channels of distribution make adequate profits

Question 19

Customer Based Pricing

Answer 19

Perceived value reflects more than just the functional benefits of a product. Uses buyers’ perceptions of value

Question 20

What are the different types of markets?

Answer 20

• Pure Competition
• Monopolistic Competition
• Oligopolistic Competition
• Pure Monopoly

Question 21

Pure Competition

Answer 21

Many buyers and sellers where each has little effect on the going market price

Question 22

Monopolistic Competition

Answer 22

Many buyers and sellers who trade over a range of prices

Question 23

Oligopolistic Competition

Answer 23

Few sellers that are sensitive to each other’s pricing/marketing strategies

Question 24

Pure Monopoly

Answer 24

Market consists of a single seller

Question 25

Elasticity

Answer 25

A way of measuring how sensitive the market is to price changes

Question 26

Elastic Demand

Answer 26

A small change in price leads to a big change in demand

Question 27

What factors impact elasticity?

Answer 27

• Availability of substitutes
• The degree of necessity (of a good)
• Proportion of income a good costs

Question 28

Competition-Based Pricing

Answer 28

Setting prices based on the competitors’ strategies and prices

Question 29

Going-rate Pricing

Answer 29

Occurs when buyers pay the same price regardless of where or who they buy the product from. Often used on commodity products which consumers perceive as the same regardless of brand

Question 30

Why might companies decrease prices?

Answer 30

• Excess capacity (supply)
• Falling market share
• To dominate the market through lower costs

Question 31

Why might companies increase prices?

Answer 31

• Cost inflation
• Over-demand (company cannot supply all customers’ needs)

Question 32

How do consumers react to price increases?

Answer 32

In general, consumers will react negatively (there are exceptions)

Question 33

What can companies do to avoid price increases?

Answer 33

Companies can change the amount of product given to reduce production costs and keep the price constant.

Question 34

Name 5 price-adjustment strategies

Answer 34

• Discount
• Promotional pricing
• Geographical pricing
• Segmented pricing
• Psychological pricing

Question 35

Why might people be more likely to buy a product even if it is more expensive?

Answer 35

To consumers, a higher price signals higher quality (even though this is not always true)

Question 36

Why do prices often end in .99 or .95 (e.g. $9.99, $9.95)?

Answer 36

Prices are perceived as less (e.g. the perceived difference between $99.99 and $100 is much bigger than the actual difference of 1 cent)

Question 37

Reference Points (Pricing)

Answer 37

Exposure to a price changes how much we are willing to pay on a given product and others we see later

Question 38

Segmented Pricing

Answer 38

Offering different products to different market segments and charging different prices for each product