Chapter 9 - Pricing Flashcards
Value pricing
Increasing product or service benefits while maintaining or decreasing price
Value = perceived benefits / price
Ex. Buying a bottle of wine for $10 at one place, or buying the same bottle for $12 at another place - you’ll go for the 10$ one clause it have better value for you (perceived benefits)
Price
The money or other considerations, including goods and services in exchange for one’s ownership or use of a product
Setting a final price equation
List Price + Extra Fees - Incentives and Allowances = Price
Steps to Setting A Final Price
- Select an approximate Prive Level
- Set the List or Quoted Price - one price policy , flexible price policy
- Make special adjustments to the list or quoted price - discounts, allowances, geographical adjustments
- Monitor and Adjust Price - competitor activity, leges,active changes, economic conditions, and consumer demand
General Pricing Approaches and descriptors
- Cost orientated approach - most common. price is set by looking at production and marketing costs - adding enough to cover direct expenses, overhead, and profit (ex. Markup)
- Profit Orientated Approaches - either a target of a specific volume or profit, or as a % of sales or investment. Profit= total revenue - Total cost
- Competition orientated approach - rather than emphasized demand, cost, or profit, the focus is on what competitors are doing. Customary , “above”, “at”, “below”, loss leader
- Demand orientated approach - emphasize factors underlying expected customer tastes and preferences
General pricing Approaches
- Cost oriented approaches
- Profit oriented approach
- Competition orientated approaches
- Demand oriented approaches
Demand oriented approaches (general pricing approach #4)
Emphasize factors underlying expected customer tastes and preferences
Skimming
Penetration
Prestige
Odd-even
Target
Bundle
Yield management
Cost Oriented Approach (general price approach #1)
Price is set by looking at the production and marketing costs and then adding enough to cover direct expenses, overhead, and profit
Standard markup
Cost-plus
Profit oriented Approach (general price approach #3)
Either set in a target of a specific dollar volume of profit or as a percentage of sales or investment.
Depends on accurate estimates of demand
Target profit
Target returns on sales
Target return on investment
Profit equation
Profit = total revenue - total cost plus
Competition oriented approach (general pricing approach #3)
Rather than emphasizing demand, cost, or profit, the focus is on what competitors are doing
Customary
Above, at, or below market
Loss leader
Estimating demand and revenue
Creating the correct price for a product begins the process of forecasting.
While price known, marketers try to determine the extent of customer demand. - (marketing efforts, competitor efforts) . Information is then translated to estimate revenue.
Profit and loss
Insights for forecasting (estimating demand and revenue)
Summarized revenues, costs, and expenditures over a period of time.
Return on Investment (ROI)
Forecasting methods
Qualitative
Regression
Multiple regression
Time-series
Price Elasticity (demand curve)
How sensitive consumer demand and the firms revenues are to changes in the products prices.
Elastic demand
In elastic demand (steeper) - ex. Gas
