Chapter 11: Manage Price Decisions

Question 1

Elements of Managing Pricing Decisions

Answer 1

1. Establish Pricing Objectives and Related Strategies
2. Select Pricing Tactics
3. Set the exact price
4. Determine channel discounts and allowances
5. Execute price changes
6. Understand legal considerations in pricing

Question 2

Penetration Pricing

Answer 2

1. Used to gain maximum market share
2. Price sensitive customer
3. Firm’s internal efficiencies lead to cost advantages which allows lower price
4. Sometimes used for new product introduction

Question 3

Price Skimming

Answer 3

• Initial high price indicates a strong price-quality relationship.
• Used by firms with first-mover advantage with high level of panache and exclusivity (e.g., electronics, pharmaceuticals).
• Used effectively in niche markets with few competitors.
• If the product moves from a niche to a differentiated product, it is difficult to maintain skimming.

Question 4

Competitor-based pricing

Answer 4

Price not too high or too below than competitor

Question 5

Stability pricing

Answer 5

The price can’t be either too high since it will risk the value proposition or too low resulting competitor irritate

Question 6

Pricing tactics (P.C.P.R.P.O.O.E.A)

Answer 6

1. Product line pricing
2. Captive pricing
3. Price bundling
4. Reference pricing
5. Prestige pricing
6. Odd/even pricing
7. One-price and variable pricing
8. EDLP and high/low pricing
9. Auction pricing