Chapter 9 Flashcards
Price
Amount of money charged for a product or service, produces revenue, most flexible of the marketing mix, and determines a firm’s market share and profitability
Pricing strategies
- Customer value based pricing
- Cost-based pricing
- Competition based pricing
Customer valued based pricing
Based on buyers’ perceptions of value rather than seller’s costs, price is considered before the marketing program is set
2 types:
- Good value pricing- offers just the right combination of quality and good service at fair price
- Value added pricing- involves attaching value added features and services to differentiate a company’s offers and then charging higher prices
Cost based pricing
Based on costs of producing, distributing, and selling product plus a fair rate of return for effort and risk
Types of costs
Fixed costs- rent, utilities, insurance, salaries, etc.
Variable costs- inputs, packaging, direct labor
TC=FC+VC
Types of cost based pricing
- Cost plus pricing (markup pricing)
Adding a standard markup to the cost of the product - Break even pricing
Setting price to break even on the costs of making and marketing a product, or setting price to make a target return
Competition based pricing
Based on competitors’ strategies, costs, prices, and market offerings
Internal factors
Overall marketing strategy, objectives, and mix
Organizational considerations
External factors
Market demand
Economy
Impact on other parties in its environment
Target costing
Starts with an ideal selling price then targets costs that ensure that price is met
Nonprice positions
Can be created to differentiate the marketing offer
Organizational considerations
Management decides who should set prices; varies depending on size and type of company
- small companies - top management
- large companies - divisional or product managers
- industries with price as key factor - pricing departments ex.) airlines, oil, steel
Pure competition
Many buyers and sellers trading in uniform commodity. No single buyer or seller has much effect on going market price
Monopolistic competition
Many buyers and sellers trading over a range of prices rather than single market price
Oligopolistic competition
Only a few large sellers
Pure monopoly
Market is dominated by single seller
Demand curve
Shows number of units the market will buy in a given time period at different prices that might be changed
Inelastic demand
Demand hardly changes with a small change in price
Elastic demand
Demand changes greatly with a small change in price
Economic factors impacting price strategies
- boom or recession
- inflation
- interest rates
Responses to frugality of post recession consumers
- cut prices and offer discounts
- develop more affordable items
- redefine value propositions
Other external factors
- how will resellers react to various prices?
- government
- social concerns
Market skimming pricing (price skimming)
Setting high price for new products to skim max revenues. Makes fewer but more profitable sales
Market penetration pricing
Setting a low price to attract a large number of buyers and a large market share
Product line pricing
Determining price steps to set between various products in a product line based on cost differences between the products, customer evaluations of different features, and competitors’ prices
Optional product pricing
Refers to pricing of optional or accessory products along with a main product
Captive product pricing
Refers to setting a price for products that must be used along with a main product (ex. games for a video game console)
By product pricing
Refers to setting a price for by products in order to make main product’s price more competitive
Product bundle pricing
Refers to combining several products and offering the bundle at reduced price
Discount
Straight reduction in price on purchases during a stated period of time or of larger quantities
Allowance
Promotional money paid to retailers for an agreement to feature the manufacturer’s products in some way
Segmented pricing
companies sells a product or service at two or more prices
- Customer segment pricing- differ customers pay differ prices for same product or service (student/senior discounts)
- Product form pricing- differ versions of products priced differently but not according to differences in costs
- Location based pricing- charging differ prices for differ locations, even tho cost of offering is the same
- Time based pricing- occurs when firm varies price by season, month, day or even the hour
Psychological pricing
Considers psychology of prices and not simply the economics
Promotional pricing
Temporarily pricing segments below the list price to increase short run sales
- Discounts and special event pricing
- Limited time offers and cash rebates
- Low interest financing and longer warranties
- Free maintenance
Geographical pricing
FOB-origin pricing- goods are placed free on board a carrier. At the point that title and responsibility pass to the customer, who pays freight from factory to destination
Uniform delivered pricing- company charges the same price plus freight to all customers regardless of their destination
Zone pricing- company sets up zones. All customers within a given zone pay a single total price. The more distant the zone, the higher the price.
Dynamic pricing
Adjusting prices continually to meet the characteristics and needs of individual customers and situations
Prevalent online where the internet introduces new age of fluid pricing
International pricing
Set a uniform worldwide price and adjust prices of reflect local market conditions and cost considerations
Prices charged depend on many factors:
Economic conditions, competitive situations, laws and regulations, nature of the wholesaling and retailing system, consumer perceptions and preferences, company’s marketing objectives, costs of selling in another country
Initiating price changes
Reasons for price cuts:
- excess capacity
- falling demand due to strong competition or weak economy
- attempt to dominate the market fish market share through volume
Reasons for price increases:
- costs inflation
- over demand
Buyers reaction/perspective to price changes
Price increase:
- product more exclusive or better made
- company being greedy
Price cut:
- brand wants better deal on exclusive product
- product quality is reduced
- company image has been tarnished
Competitors reaction/perspective to price changes
Price cut:
- company is trying to grab larger market share
- company doing poorly and trying to boost sales
- company whats while industry to cut prices to increase total demand
