Chapter 11: Pricing Concepts and Strategies Flashcards
difference in pricing from other 4 P’s
very hard to change relative to the others
revenue =
price x quantity
why is pricing important
major component of firm revenue
influence purchase decision
signals value
signals quality
signals a firm’s competitive position
use to establish value creation in marketing mix
PRICING IS EXTREMELY IMPORTANT AND WE MUST GET IT RIGHT THE FIRST TIME
shrinkflation
why the food packages you buy at the grocery store continue to become smaller (companies slowly making packaging smaller even at same price)
the role of price in the marketing mix
price is usually ranked as one fo the mist important factors in purchase decisions
price is the only element in the marketing mix that generates revenue
the 5 C’s of pricing
company objectives
customers
costs
competition
channel members
company objectives
profit oriented: focus on profit levels
sales oriented: focus on increasing sales and market share
competitor oriented: focus on competitive position
customer oriented: focus on matching customer expectations
customers
demand and supply - key tool
price elasticity of demand
elastic (price sensitive)
inelastic (price insensitive)
factors that affect elasticity
income effect
substitution effect
cross-price elasticity
costs
variable costs: vary with production
fixed costs: unaffected by production volume
total cost:
variable + fixed
total variable cost:
variable cost per unit x quantity
total revenue
price x quantity
break even point
tfc/cmu
cm
price-tvc
types of competition (4)
monopoly: single seller
oligopoly: few sellers
monopolistic competition: many sellers, intense price competition - differentiation is key
pure competition: many sellers - commodities - usually price takers but try some differentiation
Macro influences on pricing (4)
technological factors like internet: increased info; price comparisons, etc.
economic factors: increased disposable income, increased status consciousness, increased globalization, local economic conditions, cross-shopping
regulatory factors: cost of complying with government regulations, trade policies: tariffs, quotas, non-tariff restrictions, etc.
pricing strategies: cost-based, competitor-based, value-based
new product pricing and consumer adoption cycle
innovators (2.5%)
early adaptors (13.5%)
*not price sensitive
early majority (34%) late majority (34%) *price sensitive
laggards (16%)
*very price sensitive (lil bit of late majority included)
new product pricing strategies: price skimming
applied to new products, especially innovative
customers usually innovators and early adopters in PLC model
recoup R&D costs
signal quality
limit demand while ramping up production
new product strategies: market penetration pricing
set initial prices low to encourage customers to buy early and to discourage competitors
risk leaving money on the table
build sales, market share and profits quickly
costs tend to fall as volume increases
profits through volume
psychological factors affecting pricing strategies (4)
reference pricing: pricing based on your own judgement (internal = own prior knowledge, external = buy 2 get one free)
everyday low pricing: value is created in different ways (flyers at loblaws with weekly deals)
Odd prices: 7.49, 8.99, etc.
price0quantity relationship: more quantity = slightly less costs
MSRP
manufacturer suggested retail price
Consumer pricing tactics (3)
price lining
price building
leader pricing
price lining
price floor and price ceiling - offer multiple versions of product allowing for easy comparisons
