Chapter 9 - Pricing Flashcards
price
Overall sacrifice a consumer is willing to make to acquire a product
How do value and price relate?
Consumers tend to use price to judge quality
What happens when price is too high or too low?
Too low - may signal poor quality
Too High - may signal low value
What is the role of price in the marketing mix?
- ranked as one of most important factors in purchase decisions
- only element that generates revenue
What are the considerations in setting price?
- Product costs: Price floor - no profits below this price
- Competition and external factors
- Consumer perception of value: Price ceiling - no demand above this price
3 types of pricing strategies
Cost-based pricing
Competition-based pricing
Value-based pricing
What is cost-based pricing in general?
Set price based on cost to produce then convince buyer’s of product’s value (think mark-up)
What is value-based pricing in general?
Assess customer needs and value perceptions first, then design a product to deliver desired value at target price
What are three types of cost?
Variable Costs: Vary with production volume
Fixed Costs: Unaffected by production volume
Total Cost: Sum of variable and fixed costs
break-even pricing
Setting price to break even on the costs of making and marketing a product
What is the formula to determine break-even point?
Break-Even Point (units) = Fixed costs / Contribution per unit
Contribution per unit = price per unit – variable cost per unit
What is competition based pricing?
Changing prices only to meet those of the competition (status quo pricing)
good-value pricing
Offering the right combination of features at a fair price
value added pricing
Attaching value-added features and services to differentiate a firm’s offers while charging higher prices
What are the 4 types of market?
- pure competition
- monopolistic competition
- oligopolistic competition
- pure monopology
pure compeition
A large number of sellers offer similar products (e.g., soybeans, wheat)
Price determined by supply and demand
monopolistic competition
Many competing firms sell products that are differentiated (e.g., restaurants, clothing)
Price maker
oligopolistic competition
A handful of large firms account for a large market share (e.g., airlines, cell phone services)
Prone to price war
pure monopoly
The market is dominated by one seller (e.g., USPS, power company)
