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Dirección Comercial > Chapter 5: Decisions on pricing > Flashcards

Chapter 5: Decisions on pricing Flashcards

1
Q

Elements taken into account during pricing decisions

A
  • Buyer: value they give to the utiliy it has
  • Market: Meeting point of monetary value
  • Seller: value from which company is able to sell
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2
Q

Choices when changing a product price

A
  • Change consideration to be paid by the buyer
  • Modify quantity of product
  • Modify commercial conditions
  • Vary quality
  • Change complementary services
  • Set price structures
  • Modify form of payment
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3
Q

Internal factors for price decisions

A
  • Costs
  • Product Life Cycle
  • Goals of the company
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4
Q

Internal factors for price decisions: Costs

A

Minimum limit for setting the price

  • Reduced by economies of scale
  • Profitability threshold: minimum amount an organization must market to cover costs it has incurred
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5
Q

Internal factors for price decisions: Goals of the company

A
  • Maximize short term profit
  • Maximize long term profit
  • Maintain/improve market share
  • Prevent entry of competitors
  • Leadership by quality or image of the product
  • Survival
  • Segment the market
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6
Q

External factors for price decisions

A
  • Sensitivity of consumers to price

- Interdependence in demand for other products

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7
Q

External factors for price decisions: Sensitivity of consumers to price

A

Demand price elasticity

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8
Q

External factors for price decisions: Interdependence in demand for other products

A
  • Cross elasticity
  • Disinguish between complementary products and substitutes
  • Interaction with other marketing instruments
  • Competitors
  • Stakeholders and interest groups:
    Intermediaries
    Creditors
    Shareholders
    Department directors
  • Legal restrictions
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9
Q

Pricing strategies

A
  • Strategies based on demand
  • Strategies based on product portfolio
  • Prices for new products
  • Strategies based on competition
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10
Q

Pricing strategies: Strategies based on demand

A
  • Fixed or variable price strategies
  • Promotional strategies
  • Psychological pricing
  • Pricing strategies based on geographical areas
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11
Q

Pricing strategies: Strategies based on demand (Fixed or variable price strategies)

A 
Fixed price: single price not modifiable
Variable price: flexible price
- Discount prompt payment
- Discount by quantity
- Discounts functional
- Discount seasonal
- Discount by bonus
- Discount by target audiences
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12
Q

Pricing strategies: Strategies based on demand (Promotional strategies)

A
  • Random offers or discounts
  • Coupons
  • Regular sales
  • Credit
  • Professional pricing
  • Ethical pricing
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13
Q

Pricing strategies: Strategies based on demand (Psychological pricing)

A
  • Accustomed or habitual price
  • Rounded/not ronded prices
  • Prestige price
  • Low cost price
  • Price according to perceived value
  • Reference price
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14
Q

Pricing strategies: Strategies based on demand (Pricing strategies based on geographical areas)

A
  • Factory prices
  • Prices on freight absorption
  • Uniform delivery prices
  • Delivery prices by zones
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15
Q

Pricing strategies: Strategies based on product portfolio

A
  • Prices at one product line
  • Prices at optional products or accessories
  • Prices at captive or necessary products
  • Prices per package or batches of products
  • Price lines
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16
Q

Pricing strategies: Prices for new products

A
  • Skimming price

- Penetration price

17
Q

Pricing strategies: Prices for new products (Skimming)

A
  • High price at launch and reductions in future
  • Requirements:
    Innovative product
    Short product life cycle
    Demand is price inelastic
    Strong promotional expense
18
Q

Pricing strategies: Prices for new products (Penetration)

A
  • Low price at launch to get fast market share
  • Requirements:
    Not a novelty product
    Demand is very elastic
    Expanding market
    Economies of scale
19
Q

Pricing strategies: Strategies based on competition

A
  • Price maintenance
  • Price reduction
  • Premium prices
  • Bids and contests
20
Q

Pricing strategies: Strategies based on competition (Price maintenance)

A

Strong competition and similar products

21
Q

Pricing strategies: Strategies based on competition (Price reduction)

A 
Reasons:
- Lower quality or complementary services
- Stimulate demand in global market
- Output excess capacity
- Improved company costs
Factors to take into account:
- Response of consumers and competitors
- Possible price war
- Impact on product line
- Long term impact on profits
22
Q

Pricing strategies: Strategies based on competition (Premium prices)

A

Reasons:

  • Superior quality
  • Cost inflation
  • Monopoly control
23
Q

Pricing strategies: Strategies based on competition (Bids and contests)

A

The one who offers lowest price or highest quality gets contract

24
Q

Methods for determination of prices

A
  • Cost-based prices
  • Demand-based prices
  • Competition-based prices
25
Q

Methods for determination of prices: Cost-based prices

A
  • Costs relevant for pricing
  • Minimum price
  • Technical price
  • Target price method
  • Cost plus margin
26
Q

Methods for determination of prices: Cost-based prices (Costs relevant for pricing)

A
  • Long term: all costs

- Short term: variable costs

27
Q

Methods for determination of prices: Cost-based prices (Minimum price)

A

Contribution margin= PV-CVU

28
Q

Methods for determination of prices: Cost-based prices (Technical price)

A
  • PV=CVU+CFU=CTU

- Break even point

29
Q

Methods for determination of prices: Cost-based prices (Target price method)

A
  • Set a price that allows to obtain certain profit or sales volume
  • Pv=CVU+CFU+Bo
30
Q

Methods for determination of prices: Cost-based prices (Cost plus margin)

A

Adding a profit margin to the total cost

PV=CTU(1+m)

31
Q

Methods for determination of prices: Demand-based prices

A
  • Demand price elasticity
  • Residual elasticity: Elasticity of demand price + (elasticity of competition * cross elasticity)
  • Optimal price: Price that maximizes profit
  • Price based on value perceived by customers
32
Q

Methods for determination of prices: Competition-based prices

A 
Percentage in which the price exceeds that of competition
Calculated by:
- Price of a specific competitor
- Average price of competitors
- Weighted price
33
Q

Types of competition-based prices

A 
Same price
- Poor differentiation
- Well-informed buyers
Below competitive level
- Low margin but high sales volume
- Strict cost control
Above competitive level
- Prestigious products
Pricing leadership
- Larget companies are usualy leaders

Dirección Comercial (8 decks)

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