Chapter 9 - Price mix Flashcards
What is price?
The amount of money charged for a product or service, or the sum of values exchanged for the benefits of having or using the product or service.
Price is the only marketing mix element that produces revenue
What are 2 common pricing mistakes?
Reducing prices too quickly to get sales
Pricing based on costs, not customer value
What are the three pricing strategies?
Cost-based pricing
Value-based pricing
Competition-based pricing
What is the cost-based pricing strategy?
Based on the costs of producing, distributing, and selling the product plus a fair rate of return for effort and risk
Types of costs:
- Fixed costs (overhead)
- Variable costs
- Total costs
What are the two pricing methods within the cost-based pricing strategy and explain?
Cost-plus pricing: adding a standard markup to the cost of the product
Break-even pricing (target return pricing): Setting price to break even on the costs of making and marketing a product, or setting price to make a target return
What is the value-based pricing strategy?
Based on buyers’ perceptions of value rather than on the seller’s cost.
Price is considered before the marketing program is set.
Measuring perceived value can be difficult.
What are the 4 steps in cost-based pricing?
- Design a good product
- Determine product costs
- Set price based on cost
- Convince buyers of product’s value
What are the 4 steps in value-based pricing?
- Assess customer needs and value perceptions
- Set target price to match customer-perceived value
- Determine costs that can be incurred
- Design product to deliver desired value at target price
What are the two types of value-based pricing and explain?
Good-value pricing:
- Offering just the right combination of quality and good service at a fair price
- Everyday low pricing (EDLP) vs. high-low pricing
Value-added pricing:
- Attaching value-added features and services to differentiate a company’s offers and charging higher prices
What is competition based pricing?
Setting prices based on competitors’ strategies, costs, prices, and market offerings
Company should ask several questions to assess competitors’ pricing strategies:
- How does the company’s market offering compare with competitors’ offerings in terms of customer value?
- How strong are current competitors?
What are their current pricing strategies?
What are the two factors that affect pricing?
Internal factors:
- Overall marketing strategy, objectives, and mix
- Organizational considerations
External factors:
- Market and demand
- Economy
- Impact on other parties in its environment
What are the two internal factors?
Marketing strategies, objectives, and mix:
Organizational considerations:
Explain the Marketing strategies, objectives, and mix from the internal factor?
Market positioning influences pricing strategy
Other pricing objectives:
- Survival
- Current profit maximization
- Market share leadership
- Product quality leadership
Pricing must be carefully coordinated with the other marketing mix elements
Positioning may be based on price.
- Target costing starts with an ideal selling price, then targets costs that ensure the price is met.
Nonprice positions can be created to differentiate the marketing offer.
Explain the organizational considerations from the internal factor?
Management decides who should set prices.
Varies depending on the size and type of company:
- Small companies—Top management
- Large companies—Divisional or product managers
- Industries with price as the key factor—Pricing departments
What are the three external factors influencing pricing?
- Nature of market and demand
- Economy
- Other environmental elements
