Exam 2 - Pricing

Question 1

Skimming vs Penetration

Answer 1

Skimming vs. Penetration

i. Skimming – High price + low volume: Pricing as high to see what the market will bear.
ii. Penetration – Low price + high volume

Question 2

Odd / Even

Answer 2

A lot of prices are odd numbers: .99

ii. Psychiatric study on people. Trick people to think the price is lower

Question 3

Price Points

Answer 3

i. Reference price that is inside a person’s head

1. What is the appropriate price for something?? (your opinion)

Question 4

Prestige

Answer 4

i. Products sell better at a higher price

ii. Example: TagHeuer

Question 5

Hi/Lo vs. EDLP

Answer 5

i. High vs Low: Constantly changing the prices
ii. EDLP: Everyday low pricing
1. Target pioneered EDLP

Question 6

Value / Clubs

Answer 6

i. Also called frequency pricing
1. Example: Vons
Vons is value
ii. Frequent-flyers
iii. Players Clubs

Question 7

Yield Management

Answer 7

i. Airline pricing/Hotel Pricing
ii. Motivator
no inventory in service businesses
1. Mostly seen in industry with short-term perishable goods or services
iii. Sell anything above variable cost = better off

Question 8

Bundling

Answer 8

.    Example: Cox cable bundle packages
ii.    Value meals
cost less than buying things separate.
1.    However, there may be something in the bundle that you don’t want.
2.    All or nothing idea

Question 9

• Various demand oriented strategies and terminology

Answer 9

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Question 10

• Cost oriented approaches

Answer 10

Geographic systems

Experience Curves

Question 11

FOB geographic systems

FOB origin:

Answer 11

FOB origin:

FOB Destination/Delivered:

Question 12

FOB origin:

Answer 12

Title transfers at the shipping point and buy pays for transportation

Question 13

FOB Destination/Delivered:

Answer 13

Title transfer at the destination and transportation is built into the cost of the product.

Question 14

• Experience curves

Answer 14

Experience effects
1.    Cost predictably decline due to more experience
2.    Experience is defined as: Cumulative output
ii.     Sources of Experience effects
1.    Scale economies (Size efficiencies)
2.    Labor learning
3.    Design & Process Improvements
iii.    Examples & Interpretations
1.    Better manufacturing cars because of experience
iv.    Strategies
1.    Aggressive cost reduction programs
2.    Compatible marketing strategies
v.    Implementation issues
1.    Volume, Not Time
2.    Accurate, Consistent Cost Data
3.    Competitors’ costs?
vi.    Pitfalls to strategy
1.    Rapid Technological Change
2.    Cost (Not Customer) Focus
Marketing myopia
vii.    Evidence
1.    BCG (Business consulting group model)
2.    PIMS