Chap 5: Pricing

Question 1

Pricing definition (Kotler, 2010)

Answer 1

The amount of money charged for a product/service, or the value that customers exchange for the benefits of having or using it.

Question 2

In 4P, price … (Jobber, 2010)

Answer 2

is the revenue earner. The other 3 elements are costs.

Question 3

Factors affect how consumers perceive price

Answer 3

Functional, Financial, Personal circumstance, Quality, Cognitive bias, Social comparison.

Question 4

Anchoring

Answer 4

is a cognitive bias: consumers rely too heavily on an initial piece of information offered when buying. It is used when the product differentiation, novel products without competition or bidding.

Question 5

The consumer purchase decision is based on …

Answer 5

… how they perceive the price (the current actual price to be), not “stated price”.

Question 6

Three main pricing methods

Answer 6

Cost-plus pricing
Competitor-based pricing
Customer-needs-based pricing

Question 7

Advantage and disadvantage of Cost-plus pricing

Answer 7

A: Needed data to set data is easy
D: Neglect demand and competitors factors

Question 8

Advantage and disadvantage of Competitor-based pricing

Answer 8

A: Competitive situation is taken into account
D: Neglect demand factors. Risk of price war

Question 9

Advantage and disadvantage of Customer-needs-based pricing

Answer 9

A: Link to consumers’ needs and Overcome price pressure by retailers.
D: Data is hard to find and interpret. Price will be relatively high. And customers won’t immediately recognize products’ superior benefits.

Question 10

EDLP

Answer 10

charge a constant low price for high-quality offerings.

Question 11

Advantages of EDLP

Answer 11

• Less costly promotion and sales
• Erode consumer confidence in everyday shelf price.
• Customers have less time and patience

Question 12

Disadvantage of EDLP

Answer 12

Promotions can atually create excitement and draw shoppers.

Question 13

A changing economic and technological development for price decision

Answer 13

• Environmentalism, renewed frugality, concern for home and job value.
• Technological development:
  + Buyer: price comparison, name a price and get it, get product free (freemium)
  + Seller: monitor consumer behaviour and set individual offer; certain customer access to special price
  + Both: negotiation auctions

Question 14

Freemium

Hamari, Hanner, and Koivisto, 2017

Answer 14

core service is free but the revenue is generated through the sales of additional products and premium services.

Question 15

Pricing is the most flexible elements, yet pricing decision is the most difficult to make.
(Doole and Lowe, 2012)

Answer 15

Many organisations believe that pricing is the most flexible, independent and controllable element of the marketing mix. However.. many managers find pricing decisions the most difficult to make. This is in part due to the fact that whilst most firms recognise the importance of pricing at a tactical level in stimulating short‐term demand, far fewer recognise the importance of the strategic role of pricing in … marketing.

Question 16

Six major setting price objectives

Answer 16

• Survival
• Profit maximization
• Market share leadership
• Customer retention and relationship building
• Attracting new customers
• Opposing competitive threats
• Increasing customer excitement

Question 17

Factors to consider when making pricing decisions

Answer 17

• Cost: be financially informed
• Customers: how they perceive price, which value are we offering, is this the right market.
• Positioning: where are we in marketplace.
• Competitors: what is their strategy, how they position, why customers accept that price
• Profit: for survival

Question 18

Problems of the Freemium model

Hamari, Hanner and Koivisto, 2017

Answer 18

• A balance for investment between demand for premium content and high-quality core service.
• Due to popularity, “free” become less attractive
• Customers perceive quality not good since developers have fewer funds to run the service

Question 19

Types of cost-plus pricing

Answer 19

• Target return pricing
• Break-even pricing
• Markup pricing

Question 20

Types of customer-needs-based pricing

Answer 20

• Perceived-value pricing

- Value pricing (include EDLP)

Question 21

Types of competitors-based pricing

Answer 21

• Going-rate pricing

- Auction-type pricing

Question 22

Six-step process to set the price

Answer 22

Setting pricing objectives > Determine demand > Estimate cost > Analyze competitors’ price, cost, offer > Select pricing method > Select final price

Question 23

Price adaptation

Answer 23

Companies usually set not a single price, but rather a pricing structure that reflects variations in geographical demand and costs, market-segment requirements, purchase timing, etc.

Question 24

Price adaptation strategies

Answer 24

• Geographical pricing
• Price discounts and Allowances
• Promotional pricing
• Differentiated pricing

Question 25

Geographical pricing examples

Answer 25

barter (direct exchange no money), compensation deal (70% cash, rest is the product)

Question 26

Promotional pricing examples

Answer 26

loss leader pricing, psychological pricing ($299)

Question 27

Differentiated pricing examples

Answer 27

Two or more prices that did not reflect a big different proportion with cost.
time pricing, customer-segment pricing

Question 28

Initiating to price changes

Answer 28

• Initiate price cuts: may lead to price-war trap, low-quality trap, etc.
• Initiate price increases: unbundling, reduction of discount, delayed quotation pricing, escalator clauses

Question 29

Pricing decisions

Answer 29

• Understand pricing perception of consumers
• Setting the price
• Price adaptation
• Initiating and responding to price changes

Question 30

When to use a Penetration or a Skimming Strategy for pricing new products?

Answer 30

• Level of desire in the market
• Distinctiveness from competitive products
• Importance of price to market
• Ease of duplicating products
• Return on Investment objective