Ch. 9 - Pricing Flashcards
Price
The amount of money charged for a product/service
What differentiates price from the other elements of the marketing mix?
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)
Internal Factors influencing Pricing
- Cost
- Objectives
- Marketing Mix
External Factors influencing Pricing
- Customers
- Nature of Market and Demand
- Competition
- Macro Environment
Cost Based Pricing
Pricing based on costs for producing, distributing, and selling the product plus a fair rate of return. Includes standard markup and break-even pricing
Standard Markup
Adding a standard markup to the cost of a product
Break-Even Pricing
Setting price to break even on the costs of making and marketing a product
Break-Even Point
Break-Even Point (in units) = Fixed Cost / (Unit Price - Unit Variable Cost)
How should companies price products based on their marketing objective?
- 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
True or False: Price decisions can be made independently from product design, distribution, and promotion decisions.
False. Price decisions must be coordinated with product design, distribution, and promotion decisions to form a consistent and effective marketing program.
Skimming Pricing
Set price high to reap maximum profit from innovators and early adopter segments. Gradually lower price over time
Penetration Pricing
Set price low to gain maximum market share
Product Line Pricing
Company offers a range of products or services at different price points with each product having a distinct set of features and benefits
Product Bundling
Selling a combination of products together in a group at a reduced price
Optional Product Pricing
Pricing optional or accessory products sold with the main product
Give an example of product line pricing
E.g. MacBook line (MacBook Air, MacBook Pro 13-in., MacBook Pro 14 in., etc.)
Give an example of product bundling
E.g. Video Game Console Bundles (Spider-Man PS4 Bundle includes a console and a game together at a reduced price)
Give an example of optional product pricing
E.g. Car manufacturers may charge extra money for different car colours
Give an example of captive-product pricing
E.g. Electric toothbrush (the brush heads needed to use the toothbrush are expensive!)
Captive-Product Pricing
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
Channel Considerations
Involves a company ensuring that their channels of distribution make adequate profits
Customer Based Pricing
Perceived value reflects more than just the functional benefits of a product. Uses buyers’ perceptions of value
What are the different types of markets?
- Pure Competition
- Monopolistic Competition
- Oligopolistic Competition
- Pure Monopoly
Pure Competition
Many buyers and sellers where each has little effect on the going market price
Monopolistic Competition
Many buyers and sellers who trade over a range of prices
Oligopolistic Competition
Few sellers that are sensitive to each other’s pricing/marketing strategies
Pure Monopoly
Market consists of a single seller
Elasticity
A way of measuring how sensitive the market is to price changes
Elastic Demand
A small change in price leads to a big change in demand
What factors impact elasticity?
- Availability of substitutes
- The degree of necessity (of a good)
- Proportion of income a good costs
Competition-Based Pricing
Setting prices based on the competitors’ strategies and prices
Going-rate Pricing
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
Why might companies decrease prices?
- Excess capacity (supply)
- Falling market share
- To dominate the market through lower costs
Why might companies increase prices?
- Cost inflation
- Over-demand (company cannot supply all customers’ needs)
How do consumers react to price increases?
In general, consumers will react negatively (there are exceptions)
What can companies do to avoid price increases?
Companies can change the amount of product given to reduce production costs and keep the price constant.
Name 5 price-adjustment strategies
- Discount
- Promotional pricing
- Geographical pricing
- Segmented pricing
- Psychological pricing
Why might people be more likely to buy a product even if it is more expensive?
To consumers, a higher price signals higher quality (even though this is not always true)
Why do prices often end in .99 or .95 (e.g. $9.99, $9.95)?
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)
Reference Points (Pricing)
Exposure to a price changes how much we are willing to pay on a given product and others we see later
Segmented Pricing
Offering different products to different market segments and charging different prices for each product
