Chapter 9: Pricing To Capture Customer Value

Question 1

What is price?

Answer 1

The amount of money charged for a product or service, or the sum of the values consumers exchange for the benefits of having or using the product or service.

Question 2

What are the major pricing strategies?

Answer 2

. Customer value-based pricing
. Cost-based pricing and
. Competitor-based pricing

Question 3

What is customer value-based pricing?

Answer 3

Setting the price based on buyers’ perceptions of value, rather then on the seller’s cost.

There are two types of this pricing, being:
. Good-value pricing and
. Value-added pricing

Question 4

What is good-value pricing?

Answer 4

Offering just the right combination of quality and good service that customers want at a fair price.

Question 5

What is value-added pricing?

Answer 5

Rather than cutting prices to match competitors’ prices, marketers adopting this strategy attach value-added features and services to differentiate their offerings and this supports higher prices.

Question 6

What is cost-based pricing?

Answer 6

This involves setting prices based on the costs for producing, distributing and selling the product, plus a fair rate of return for its effort and risk.

Question 7

What are the different types of cost?

Answer 7

Fixed costs (don’t vary with levels of production), variable costs (vary with levels of production) and total costs (sum of first two).

Question 8

What is competition-based pricing?

Answer 8

Setting prices based on competitors’ strategies, costs, prices and market offerings.

Question 9

What are the pricing strategies for new products?

Answer 9

Market-skimming prices and market-penetration pricing.

Question 10

What is market-skimming pricing (price skimming)?

Answer 10

Setting a high price for a new product to skim maximum revenue from the segments willing to pay the high price; the company makes fewer but more profitable sales.

Question 11

What is market-penetration pricing?

Answer 11

Setting a low price for a new product in order to attract a large number of buyers and a large market share.

Question 12

What a the five product-mix pricing situations?

Answer 12

. Product-line pricing 
. Optional-line pricing
. Captive-product pricing
. By-product pricing and
. Product-bundle pricing

Question 13

Explain product-line pricing.

Answer 13

In product-line pricing, managers must decide on the pride steps to set between the various products in a line.

Question 14

Explain optional-line pricing.

Answer 14

Offering to sell accessory products along with their main product.

Question 15

Explain captive-product pricing.

Answer 15

Companies making products that must be sued along with a main product.

Eg. Razor-blade cartridges, video games

Question 16

Explain by-product pricing.

Answer 16

Producing products and services often generates by-products.

Using this pricing, a company seeks a market for these by-products to help offset the costs of disposing them and to help make the price of the main product more competitive.

Eg. Sawdust and resin - used to make park benches.

Question 17

Explain product-bundle pricing.

Answer 17

Using this, sellers often combine several of their products and offer the bundle at a reduced price.

Eg. Fast food restaurants

Question 18

What are price-adjustment strategies?

Answer 18

Companies usually adjust their basic prices to account for various customer differences and changing situations. There are seven price adjustment strategies available, being:

. Discount and allowance pricing (reducing prices to reward customer responses such as paying early or promoting the product)

. Segmented pricing (adjusting prices to allow for differences I customers, products or locations)

. Psychological pricing (adjusting prices for psychological effect, not simply economics - brand seen as high quality = high price)

. Promotional pricing (temporarily reducing prices to increase short-run sales)

. Geographical pricing (adjusting prices to account for geographic locations of customers)

. Dynamic pricing (adjusting prices to continually meet the characteristics and needs of individual customers and situations)

. International pricing (adjusting prices for international markets)