chapter 10: pricing: understanding and capturing customer value Flashcards
price
the amount of money charged for a product or a service, or the sum of the values that customers exchange for the benefits of having or using the product or service
the most flexible P
only P that gives you cash
what are the major pricing strategies
Customer Value-Based
Cost-Based Pricing
Competition-Based Pricing
Customer Value-Based pricing strategy
they one you should strive for
Setting price based on buyers’ perceptions of value rather than on the seller’s cost
Company first assesses customer needs and value perceptions, then sets a price based on customer perceptions of value
what is the price ceiling?
the max price that you could price a product to if you want customers to buy it
any price above won’t attract anything
what is price floor?
should be the cost of the product
if the company prices the product below its costs, company products will suffer
what sets price ceilings?
Customer perceptions of the product’s value set
what sets the price floors?
Product costs set the floor for prices
why is it hard to measure te customer perceived value?
because values are subjective and depend on the customer and situation
what are the 2 types of valued based pricing?
good value pricing
value added pricing
good value pricing
offering just the right combination of quality and good service at a fair
price
what does good value pricing involve?
Often involves introducing less expensive versions of established brand-name products
Other times, redesigning existing brands to offer more quality for a given price or the same quality for less
At the retail level, Everyday Low Pricing (EDLP) involves charging a constant, everyday low price with few or no temporary price discounts (Walmart)
High-low pricing
what is High-low pricing
charging higher prices on an everyday basis but running frequent promotions to lower prices temporarily on selected items
Value-Added Pricing
attaching value-added features and services to differentiate a company’s offers and charging higher prices
Rather than cutting prices to match competitors, companies attach value-added features and services to differentiate their offers and justify higher prices
what is the cost based pricing strategy
Setting prices based on the cost for producing, distributing, and selling the product plus a fair rate of return for effort and risk
company designs what it considers to be a good product, adds up the costs of making the product, and sets the price in a way that they can still make profit
what must marketers do after cost-based pricing?
must convince buyers that the product’s value at that price justifies its purchase
what are the type of costs?
fixed (overhead) costs
variable costs
total costs
fixed (overhead) costs
costs that do not vary with production or sales level
they do not change
variable costs
costs that vary directly with the level of production
they do change
total costs
fixed + variable costs
Cost-Plus Pricing (Mark-Up Pricing)
adding a standard mark-up to the cost of the product
what is a cost-plus pricing wank?
It ignores consumer demand and competitor prices
what are the advantaged of cost-plus pricing?
easier to price
when all firms in the industry use this pricing method, prices tend to be similar, minimizing price competition
Break-Even Pricing (Target Return Pricing)
setting price to break even point
what is the problem with real-even pricing?
fails to consider customer value
fails to consider the relationship between price and demand
Competition-Based Pricing
Setting prices based on competitors’ strategies, prices, costs, and market offerings
depends on how the consumer perceives the companyprovides customer value compared to competitors
if customers feels like a company provides more customer value than their competitors, how should the company price whatever they offer?
the company can charge a higher price
if customers feels like a company provides less customer value than their competitors, how should the company price whatever they offer?
the company must either ( charge less or change customer perception to charge more
internal factors affecting pricing
Overall Marketing Strategy
Objectives
Marketing Mix
organizational considerations
Overall Marketing Strategy
the company must decide on its overall marketing strategy before setting price
Pricing strategy is largely determined by decisions on brand positioning
ex: Honda developed its Acura brand to compete with European luxury-performance cars & so needed to to set prices in line with luxury performance cars
objectives as strategy
A firm can set prices to attract new customers or to profitably retain existing ones
keep the loyalty and support of resellers or to avoid government intervention
prevent competition
continue competing
setting prices low would do what to competitors
prevent them from entering
could also set prices at competitors’ levels to stabilize the market
why would prices be reduced even tho company still killing it?
to create excitement for a brand
true or false
One product may be priced to help the sales of other products in the company’s line
true
why musth the marketing mix be considered in the pricing strategy
Pricing decisions must be carefully coordinated with other marketing mix elements
Pricing decisions must be carefully coordinated with other marketing mix elements
includes target costing
target costing
pricing that starts with an ideal selling price, and then targets costs that will ensure that the price is met
ex: When Honda set out to design the Fit, it began with a $13,950 starting point and 33-miles-per-gallon operating efficiency firmly in mind
THEN, it designed a stylish, peppy little car with costs that allowed it to give target customers those values
what does the marketing mix allow you to do instead of just tryin to sell at the lowest price?
to differentiate the marketing offer to make it worth a higher price
why are organizational considerations in the marketing strategies?
important to determine Who within the company should set prices
what are the external factors affecting pricing decisions
The Market and Demand
The Economy
Other External Factors
what are the important factors to consider when considering the market and demand to price our products?
the different type of markets
the price-demand relationship
price elasticity of demand
what are the different types of markets?
pure competition
monopolistic competition
Oligopolistic Competition
Pure Monopoly
pure competition
market consists of many buyers and sellers trading in a uniform
commodity
ex: wheat, copper, or financial securities
Not much time spent on marketing strategy
do competitors in pure competition have any effect on the price?
nah bruh
there are so many competitors that they each have to adapt to the market price
Monopolistic Competition
market consists of many buyers and seller
they all trade over a range of prices rather than a single market price
Marketing matters!
why do competitors in a monopolistic competition trade over a range of prices
sellers can differentiate their offers to buyers.
Oligopolistic Competition
market consists of a few sellers who are highly sensitive
to each other’s pricing and marketing strategies
ex: Rogers, Bell, Fido, Telus
Pure Monopoly
market consists of one seller
ex: market consists of one seller
explain the Price-Demand Relationship
each price the company might charge will lead to a different level of demand
price elasticity of demand
extent to which buyers will change their demand to change of product prices
inelastic demand
if price changes, the quantity demanded practically won’t change
elastic demand
slight price changes will completely change the quantity demanded
the economic factor influencing pricing decisions
boom
a recession
interest rates
why do economic factors affect pricing decisions
they affect consumer spending, consumer perceptions of the product’s price and value, and the company’s costs of producing and selling a product
what are the other external factors affecting the pricing decisions?
Resellers
Government
Social concerns
what are the two broad strategies of product pricing?
Market-Skimming Pricing
Market-Penetration Pricing
Market-Skimming Pricing
setting a high price for a new product
goal is to skim maximum
revenues layer by layer from the segments willing to pay the high price
Enough buyers must want the product at that price
what is the result of a successful market skimming pricing?
the company makes fewer but more profitable sales
Market-Penetration Pricing
setting a low initial price for a new product
goal is to attract a large number of buyers and a large market share
to attract a large number of buyers and a large market share
what is the result of a successful market-penetration pricing?
High volumes sales
falling costs
allows the company to lower their prices even further
what are the 5 product mix pricing situations?
Product Line Pricing
Optional-Product Pricing
Captive-Product Pricing
By-Product Pricing
Product Bundle Pricing
Product Line Pricing
setting the price steps between various products in a product line
ex: company offers some 20 different collections of bags from its laptop bags ranging from $20-$35, to it high-end luggage line, where a small suitcase retails at $500
based on cost differences between the products, customer evaluations of different features, and competitors’ prices
Optional-Product Pricing
the pricing of optional accessory products along with a main product
ex: New cars offer sound systems, Bluetooth, GPS systems, and many other options
Captive-Product Pricing
setting a price for products that must be used along with a main product
ex: blades for a razor, games for a video-game console, and ink for printers
in captive-product pricing, why are sometimes the main products priced low?
to boost the prices of the necessary accessories
By-Product Pricing
setting a piece for by-products to make the main product’s price more competitive
turning trash into cash
Product Bundle Pricing
combining several products and offering the bundle at a reduced price
ex: fast food restaurants bundle a burger, fries and soft drink into a “combo”
what are the 7 price adjustment strategies
- Discount and Allowance Pricing
- Segmented Pricing
- Psychological Pricing
- Promotional Pricing
- Geographical Pricing
- Dynamic Pricing
- International Pricing
- what is discount pricing
a straight reduction in price on purchases during the stated period of time or on larger quantities
cash discount
quantity discount
seasonal discount
cash discount
price reduction to buyers who pay their bills promptly
Ex: 2/10, n30
quantity discount
price reduction to buyers who buy large volumes
seasonal discount
price reduction to buyers who buy merchandise or services out of season
allowances
promotional money paid by manufacturers to retailers
in exchange, manufacturers want their products featured in gyu ways
Trade-In Allowance
price reductions given for turning in an old item when buying a new one
Promotional Allowance
payments or price reductions to reward dealers for participating in advertising and sales support programs
- Segmented Pricing
Selling a product or service at two or more prices
the difference in prices is not based on differences in costs
what are the types of segmented pricing?
Customer-segment pricing
Product-form pricing
Location-based pricing
Time-based pricing
Customer-segment pricing
different customers pay different prices for the same product or service
ex: Museums charge a lower admission for students and seniors
Product-form pricing
different versions of the product are priced differently
not priced according to differences in their costs
ex: 1st class and economy seating on a flight
Location-based pricing
a company charges different prices for different locations
ex: seating in a sports arena
Time-based pricing
a firm varies its different prices by the season, the month, the day, and even the hour
ex: Cheapy Tuesdays at the movie theatre
what is one very important thing to be cautious with regarding customer perceived value snd segment pricing?
Consumers in higher price tiers must feel that they’re getting the extra money’s worth
consumers in lower price tiers must not be treated as second-class citizens
- Psychological Pricing
pricing that considers the psychology of prices and not simply the economics
price is used to say something about the product
ex: a $100 bottle of perfume may contain only $3 worth of materials, but consumers are willing to pay the $100 because this price indicates something special
references prices
part of psychological pricing
prices that buyers carry in their minds and refer to when they look at a given product
ex: a company could display its products next to more expensive ones to imply that it belongs in the same class
- Promotional Pricing
temporarily pricing products below the list price and sometimes even below cost
goal is to increase short-run sales
what are the types of promotional pricing
discounts
Special-event pricing
Cash rebates
Low-interest financing
Longer warranties
Free maintenance
what is a danger with promotional pricing?
if used too frequently, it can create “deal-prone” customers who wait until brands go on sale before buying them
- Geographical Pricing
setting prices for customers located in different parts of the country or world
what are the types of geographical pricing?
FOB-origin pricing
uniform-delivered pricing
zone pricing
FOB-origin pricing
goods are placed free on board (FOB)
customers pays shipping
Uniform-delivered pricing
company charges the same price plus freight to all customers, regardless of their location
zone pricing
all customers within a given zone pay a single total price
a more distant zone pay a higher price
- Dynamic Pricing
adjusting prices continually
goal is to meet the characteristics and needs of individual customers and situations
ex: consumers control pricing by bidding on auction site such a eBay or Kijiji
- international pricing
companies that market their products worldwide must decide what prices to charge in the different countries in which they operate
what does the international pricing strategy depend on?
economic conditions
competitive situations
laws and regulations
development of the wholesaling and retailing system
what are the types of prices changes?
price cuts
price increases
why are price cuts needed?
(1) excess capacity
(2) failing demand
why are price increases needed?
(1) improve profits
(2) cost inflation
what is a fighter brand?
adding a lower-price item to the line or creating a separate lower-price brand
why are fighter brands created?
created explicitly to win back customers who have switched to a lower-priced rival
what is the purpose of the Competition Act?
“to maintain and encourage competition in Canada in order to promote the efficiency and adaptability of the Canadian economy, in order to expand opportunities for Canadian participation in world markets while at the same time recognizing the role of foreign competition in Canada, in order to ensure that small and medium sized enterprises have an equitable opportunity to participate in the Canadian economy and in order to provide consumers with competitive prices and product choices”
basically, just remember its there to eliminate rats
what does the Competition act prohibit
price fixing
bid rigging
predatory pricing
price discrimination
functional discounts
retail price maintenances
deceptive pricing
what illegal practice corresponds to:
setting prices while talking to competitors
price fixing
what illegal practice corresponds to:
where one party agrees not to submit a bit or tender in response to a call
agrees to withdraw a bid or tender submitted at the request of another party
bid rigging
what illegal practice corresponds to:
selling below cost with the intention of punishing a competitor, or gaining
higher long-run profits by putting competitors out of business
predatory pricing
what illegal practice corresponds to:
setting different prices to different types of customers who are willing to pay more or less for the same product
Price discrimination
what illegal practice corresponds to:
offering a larger discount to wholesalers than to retailers
functional discounts
what illegal practice corresponds to:
asking for dealers to charge a specific retail price for its products
Retail price maintenance
what illegal practice corresponds to:
when a seller states prices that are not actually available to consumers
Deceptive pricing
