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
