Chapter 9: Pricing To Capture Customer Value Flashcards
What is price?
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.
What are the major pricing strategies?
. Customer value-based pricing
. Cost-based pricing and
. Competitor-based pricing
What is customer value-based pricing?
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
What is good-value pricing?
Offering just the right combination of quality and good service that customers want at a fair price.
What is value-added pricing?
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.
What is cost-based pricing?
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.
What are the different types of cost?
Fixed costs (don’t vary with levels of production), variable costs (vary with levels of production) and total costs (sum of first two).
What is competition-based pricing?
Setting prices based on competitors’ strategies, costs, prices and market offerings.
What are the pricing strategies for new products?
Market-skimming prices and market-penetration pricing.
What is market-skimming pricing (price skimming)?
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.
What is market-penetration pricing?
Setting a low price for a new product in order to attract a large number of buyers and a large market share.
What a the five product-mix pricing situations?
. Product-line pricing . Optional-line pricing . Captive-product pricing . By-product pricing and . Product-bundle pricing
Explain product-line pricing.
In product-line pricing, managers must decide on the pride steps to set between the various products in a line.
Explain optional-line pricing.
Offering to sell accessory products along with their main product.
Explain captive-product pricing.
Companies making products that must be sued along with a main product.
Eg. Razor-blade cartridges, video games
Explain by-product pricing.
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.
Explain product-bundle pricing.
Using this, sellers often combine several of their products and offer the bundle at a reduced price.
Eg. Fast food restaurants
What are price-adjustment strategies?
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)
