Chapter 7 | Price Management Flashcards
What is the purpose of price management?
Adjust the price to affect demand
What is the key of price management?
Customers’ perceived fairness
What is a reference transaction?
How customers think the transaction should be conducted
What is a reference price?
How much customers think the transaction should cost; reference price may come from market prices, posted prices, and the last price paid
What is interpersonal fairness?
Discriminatory pricing that is perceived as “unfair” among customers can generate a tremendous amount of negative emotion and ill will and is unrelated to customer service
What is dual entitlement?
Consumers believe that they are entitled to a reasonable price and firms are entitled to a reasonable profit.
How can you influence the reference transaction?
Add value
How can you influence the reference price?
Set up a higher rack rate
Offer low price with restrictions
What are the five types of price positioning?
- Skim
- Match
- Undercut
- Surround
- Penetrate
What is Skim?
Status indicating quality products. Charge the highest price customers will pay. Price lowers gradually following the demand curve to “skim off” the higher-paying customers
What is Match?
When you are a little better than your competition set one rate to match and another slightly higher
What is Undercut?
When your competition is a little better than you offer a price to match and another slightly lower
What is Penetrate?
A price war to gain market share. Rates set lower than competitors. Only works at the growth stage
