Ch. 9 Pricing: Understanding and Capturing Customer Value Flashcards
Price
The amount of money charged for a product or service; the sum of the values that customers exchange for the benefits of having or using the product or service.
Customer value-based pricing
Setting price based on buyers’ perceptions of value rather than on the seller’s cost.
Good-value pricing
Offering the right combination of quality and good service at a fair price.
Value-added pricing
Attaching value-added features and services to differentiate a company’s offers while charging higher prices.
Cost-based pricing
Setting prices based on the costs for producing, distributing, and selling the product plus a fair rate of return for effort and risk.
Fixed costs (overhead)
Costs that do not vary with production or sales level.
Variable costs
Costs that vary directly with the level of production.
Total costs
The sum of the fixed and variable costs for any given level of production.
Cost-plus pricing (markup pricing)
Adding a standard markup to the cost of the product.
Break-even pricing (target return pricing)
Setting price to break even on the costs of making and marketing a product, or setting price to make a target return.
Competition-based pricing
Setting prices based on competitors’ strategies, prices, costs, and market offerings.
Target costing
Pricing that starts with an ideal selling price and then targets costs that will ensure that the price is met.
Demand curve
A curve that shows the number of units the market will buy in a given time period, at different prices that might be charged.
Price elasticity
A measure of the sensitivity of demand to changes in price.
Market-skimming pricing (or price skimming)
Setting a high price for a new product to skim maximum revenues layer by layer from the segments willing to pay the high price; the company makes fewer but more profitable sales.
Market-penetration pricing
Setting a low price for a new product to attract a large number or buyers and a large market share.
Product line pricing
Setting the price steps between various products in a product line based on cost differences between the products, customer evaluations of different features, and competitors’ prices.
Optional product pricing
The pricing of optional or accessory products along with a main product.
Captive product pricing
Setting a price for products that must be used along with a main product, such as blades for a razor and games for a videogame console.
By-product pricing
Setting a price for by-products to make the main product’s price more competitive.
Product bundle pricing
Combining several products and offering the bundle at a reduced price.
Discount
A straight reduction in price on purchases made during a stated period of time or in larger quantities.
Allowance
A reduction form the list price for buyer actions such as trade-ins or promotional and sales support.
Segmented pricing
Selling a product or service at two or more prices, where the difference in prices is not based on differences in costs.
Psychological pricing
Pricing that considers the psychology of prices, not simply the economics; the price says something about the product.
Reference prices
Prices that buyers carry in their minds and refer to when they look at a given product.
Promotional pricing
Temporarily pricing products below the list price, and sometimes even below cost, to increase short-run sales.
Dynamic pricing
Adjusting prices continually to meet the characteristics and needs of individual customers and situations.
