CHAPTER ELEVEN Flashcards
What are the product pricing strategies? [3]
New product pricing
Product mix pricing
Price adjustments
What is market skimming pricing?
Setting a high price for a new product to skim maximum revenues layer by layer from the segments willing to pay the high price; then makes fewer but more profitable sales.
What are the requirements of market skimming pricing? [4]
- Quality and image must support the high price.
- Enough buyers need to be willing to pay the price.
- Costs should be low enough not to cancel the advantage of a higher price.
- Competitors should not be able to enter the market easily and undercut the price.
What is market penetration pricing?
Setting a low price for a new product in order to attract a large number of buyers and establish a large market share.
What are the requirements for market penetration pricing? [4]
- The market needs to be highly price sensitive.
- Production and distribution costs must fall as sales volume increases.
- The low price needs to keep competition out of market.
- The low-price position needs to be maintained to keep market share
What are the types of new product pricing? [2]
- Market skimming pricing
- Market penetration pricing
What are the types of product mix pricing? [5]
What are the types of product line pricing?
Setting price steps between various products in a product line based on cost differences between the products, customer evaluation of different features, and competitor’s prices.
What is optional product pricing?
The pricing of optional or accessory products along with a main product.
What is captive product pricing?
Setting a price for products that must be used along with a main product.
What is by-product pricing?
Setting a price for by-products in order to make the main product’s price more competitive
What is product bundle pricing? [3]
- Combining several products and offering the bundle at a reduced price.
- Pure bundling – products are only offered as a bundle.
- Mixed bundling – products are usually separate but can be bundled
What is price adjustment strategies? [7]
- Discount and allowance pricing
- Segmented pricing
- Psychological pricing
- Promotional pricing
- Geographical pricing
- Dynamic pricing
- International pricing
What is discount pricing?
A straight reduction in price on purchases during a stated period of time
What are the types of discounts? [4]
Quantity discount – discounts for buying certain quantities (bulk)
Trade discount – discounts to trade-channel members.
Seasonal discount – discounts during off-peak season.
Loyalty
What is allowance pricing?
Promotional money paid by manufacturers to retailers in return for an agreement to feature the manufacturer’s products in some way
What is segmented pricing and what do the differences in pricing include ? [2]
Selling a product or service at two or more prices, where the difference in prices is not based on differences in costs
Differences can include type of customer, product-form, location, or timing.
What is psychological pricing?
A pricing approach that considers the psychology of prices and not simply the economics: the price is used to say something about the product.
What is odd-even pricing?
Odd-even pricing – pricing using odd numbers to give the illusion of being cheaper.
What is promotional pricing and when should it be used? [2]
Temporarily pricing products below the list price, and sometimes even below cost, to increase short-run sales.
Should only be used occasionally as it creates customers who only shop during promotions and drives up competition.
What is geographical pricing and when can producers charge more?
Setting prices for customers located in different geographical locations.
Can charge more the further a customer is from your location.
What is dynamic pricing?
Adjusting prices continually to meet the characteristics and needs of individual customer and situations.
What markets work well for dynamic pricing? [3]
Works well for services, micro-marketing, oligopolies or monopolies.
What is international pricing?
Adjusting prices for international markets considering costs, competition and customer value, and choosing which elements of product pricing to adopt.
What is international pricing?
Adjusting prices for international markets considering costs, competition and customer value, and choosing which elements of product pricing to adopt.
What do price changes include? [4]
- Price cuts
- Price increases
- Competitor reactions
- Buyer reactions
What are price cuts? [4]
What are price increases? [2]
- Cost inflation
- Excess demand
What are buyer reactions? [2]
Price sometimes can be seen as quality of a product
Price cuts could sometimes lead to consumers thinking there has been a reduction in quality
What are competitor reactions?
What are competitor reactions?
What has been a source of concern for governments, courts of law, businesses and the public for a long time?
Several pricing issues have been a source of concern for governments, courts of law, businesses and the public for a long time
What is the most important legislation affecting pricing in South Africa?
The most important legislation affecting pricing in South Africa is the Competition Act 89 of 1998
What are FOUR illegal and unethical pricing practices? [4]
- Price discrimination:Selling the same product at different prices to different buyer
- Price collusion and price fixing:
Occurs when a small number of companies supply a particular market - Predatory pricing:
Setting prices low in an attempt to eliminate the competition - Deceptive pricing:
Pricing of goods and services in such a way as to cause a customer to be misled
