Chapter 7

Question 1

Define Price.

Answer 1

The amount of money charged for a product or service or the sum of the values that consumer exchange for the benefit of having or using the product or service.

Question 2

State the factors to be considered while setting Price.

Answer 2

1. Customer perceptions of value
2. Other internal & external considerations (Mktg strategy, objectives, demand, competitor’s strategy etc..)
3. Product Costs

Question 3

Explain the types of Pricing Approach.

Answer 3

1. Value-Based Pricing Aproach: Setting price based on buyer’s perception of value rather than on the seller’s cost.

Customer – Value – Price – Product – Cost

Types of VBPA -
a. Good Value Pricing: Offering just the right combination of quality and good service at a fair price.

b. Value added Pricing: Attaching value added features and services to differentiate a company’s offer and to support charging higher price.

2 Cost Based Pricing Approach:
Setting price based on the costs for producing, distributing & selling the product plus a fair rate of return for effort & risk.

Product – Cost – Price – Customer – Value

Types of Costs:
i. Fixed Costs (Overhead) – Costs that do not vary production or sales level.
ii. Variable Costs – Costs that vary directly with the level of production.
Total Costs – The sum total of fixed and variable costs for any given level of production.

Types of Cost Based Value Approach:
a. Cost Plus pricing: Adding a standard markup to the cost of the product.

b. Break even pricing / Target profit Pricing: Setting price to breakeven on the costs of making and marketing a product or setting price to make a target profit.

Question 4

Explain the different Product Pricing Strategies.

Answer 4

1. New Product Pricing Strategies: Adopted during introductory stage of a product.
2. Product Mix Pricing Strategies: For setting a product’s price based on product mix a company is offering.
3. Price Adjustment Strategies: Adjustment of basic price to account for various customer differences & changing situations.
4. Market skimming Pricing: Setting a high price for a new product to skim maximum revenues from segments who are willing to pay.
5. Market penetration Pricing: Setting a low price for a new product in order to attract a large number of buyers & a large market share.
6. Product Line Pricing: Setting the price steps between various products in a product line based on cost differences between the products.
7. Optional Product Pricing: The pricing of optional or accessory products along with main product.
8. Captive Product Pricing: Setting a price for products that must be used along with a main.
9. Product Bundle Pricing: Combining several products and offering the bundle at a reduced price.