Ch. 9 | Pricing Flashcards
Define Value Pricing
Value Pricing
increasing product or service benefits while maintaining or decreasing price
Value = percieved benefits / price
What is the equation to find profit?
Profit = total revenue - total cost
total revenue (unit price X quantity sold) - total cost
What are the 4 General Pricing Approaches?
- demand oriented
- cost orientated
- profit orientated
- competition oriented
What is the Demand-orientated pricing approach?
Demand Orientated
it emphasizes factors underlying expected customer tastes and preferences
What strategies are included in the demand-orientated pricing approach?
- skimming
- penetration
- prestige
- odd-even
- target
- bundle
- yield management
What is involved in the skimming pricing strategy approach?
Skimming
setting the highest initial price to those who are willing to pay
- a firm introducing a new product
Eg. TVs
What is involved in the penetration pricing strategy approach?
Penetration
setting a lower, more affordable initial price on a new product to appeal immediately to the mass market
Eg. nintendo wii
What is involved in the prestige pricing strategy approach?
Prestige
setting a high price so that quality - or status-conscious consumers are attracted to the product
Eg. Rolex
What is involved in the odd-even pricing strategy approach?
Odd-Even
sets pricing a few dollars or cents under an even number
- $399.99 instead of $400.00
What is involved in the target pricing strategy approach?
Target
manufacturers deliberatley adjust the composition and features of a product to achieve the target price
What is involved in the bundle pricing strategy approach?
Bundle
markets two or more products as one in a single package
Eg. travel packages
What is involved in the yield management pricing strategy approach?
Yield Management
the charging or different prices to maximize revenue for a set amount of capacity at any given time
Eg. airline tickets, hotels
What is the cost-orientated pricing approach?
Cost Orientated
the price is set by looking at production & marketing costs and then adding enough to cover direct expenses, overhead, and profit
What strategies are included in the cost-orientated pricing approach?
- standard markup
- cost-plus
What is involved in the cost-plus pricing strategy approach?
Cost-plus
involves the summing of the total unit cost of a product and adding a specific amount to the cost inorder to arrive at a certain price
Eg. lawyers, service sector
What is the profit-orientated pricing approach?
Profit Orientated
a company may choose to balance both revenues and costs to set price.
- either set a target of a specific dollar volume of profit or as a % of sales or investment
- depends on accurate estimates of demand
What is the competition-orientated pricing approach?
Competition Orientated
based on an analysis of what the competition is doing
What is a demand curve?
Demand Curve
a demand curve is a graph that shows the number of products that will be sold at a given prive
What are 3 key factors for the demand curve?
- Want
- Need
- Price elasticity
What is Total Revenue and its equation?
Total Revenue
is the total money received form the sale of a product
- TR = unit price X quantity sold
- TR = P x Q
TR = total revenue
P = unit price of the product
Q = quantity of the product sold
What 2 things does total cost include and what is the equation of it?
Total cost = FC + VC
- fixed cost (FC)
- variable cost (VC)
What are the 4 steps in setting a final price?
Step 1
- select an apprx. price level
Step 2
- set the list or quoted price
Step 3
- make adjustments to the price
Step 4
- monitor and adjust prices
