Final Exam - Chapter 21 Flashcards
6 Steps of Pricing Process
development of pricing objectives, assessment of target market’s evaluation of price, evaluation of competitors’ prices, selection of a basis for pricing, selection of a pricing strategy, determination of a specific price
PP Step 1 - Development of Pricing Objectives
goals that describe what a firm wants to achieve through pricing
Survival
adjust price levels so the firm can increase sales volume to match organizational expenses
Profit
identify price and cost levels that allow the firm to maximize profit
Return on Investment
identify price levels that enable the firm to yield targeted ROI
Market Share
adjust price levels so the firm can maintain or increase sales relative to competitors’ sales
Cash Flow
set price levels to encourage rapid sales
Status Quo
identify price levels that help stabilize demand and sales
Product Quality
set prices to recover research and development expenditures and establish a high-quality image
PP Step 2 - Assessment of the Target Market’s Evaluation of Prices
depends on type of product, type of target market, purchase situation; value combines a product’s price and quality attributes (ex: cut lettuce vs. whole head)
PP Step 3 - Evaluation of Competitor’s Prices
marketers should use competitors’ prices to help them establish their own prices
PP Step 4 - Selection of a Basis for Pricing
can choose to price based on cost, demand, or competition; market costs usually end up bouncing between all three
Things to Consider When Selecting A Basis
type of product, market structure, brand’s market share, customer characteristics
Cots-Based Pricing
adding a dollar amount or percentage to the cost of the product
Cost-Plus Pricing
determine the seller’s cost and add a specified dollar to it; used when production costs are difficult to predict (ex: WWII)
Markup Pricing
adding a redetermined percentage of the cost to the price of the product (based on either cost or price)
Demand-Based Pricing
customers pay a higher price when demand for the product is strong and a lower price when demand is weak
Competition-Based Pricing
pricing influenced primarily by competitors’ prices
Non-Price Factors Affecting Demand
market competition, competitors reactions, economic conditions, product quality, available substitutes, service support, ads/promo
PP Step 5 - Selecting a Pricing Strategy
an approach or course of action designed to achieve pricing and marketing objectives
Differential Pricing
charging different prices to different buyers for the same quality and quantity of producer (ex: diff. tuition charges for diff. majors)
Negotiated Pricing
establishing a final price through bargaining between seller and customer (ex: house/car)
Secondary-Market PRicing
one price for primary target market and a diff. price for another market (ex: prices in the US and in a 3rd world country)
Periodic Discounting Pricing
Temporary reduction of prices on a patterned or systematic basis (Cars, year old models discounted in fall) May train consumers to wait.
Random Discounting Pricing
Temporary reduction of prices on an unsystematic basis
Price Skimming
Charging the highest possible price that buyers who most desire the product will pay
Penetration Pricing
Setting the price below those of competing brands to penetrate a market and gain a significant market share quickly (Amazon-limit competitors)
Product-Line Pricing
Establishing and adjusting prices of multiple products within a product line
Captive Pricing
Pricing the basic product in a product line low to increase demand while pricing related items higher (ex: razors and blades)
Premium Pricing
Pricing the highest-quality or most versatile products higher than other models in the product line (ex: Apple Computer, Beer, Appliances)
Bait Pricing
Pricing an item in a product line low with the intention of selling a higher-priced item in the line. (Bait and Switch) Mattress for $20 have none but have many priced at $60
Price LIning
Setting a limited number of prices for selected groups or lines of merchandise
Psychological Pricing
Pricing that attempts to influence a customer’s perception of price to make a product’s price more attractive (use of $.99)
Reference Pricing
Pricing a product at a moderate level and displaying it next to a more expensive model or brand
Bundle Pricing
bundling together two or more complementary products and selling them at a single price. (Vacations packages, Happy Meal, Internet/phone/Cable Cable channels are bundled)
Multiple-Unit Pricing
Packaging together two or more identical products and selling them at a single price. Warehouse clubs like Costco 4 packs, 12 packs- increase consumption/increase consumer inventory
Everyday Low Prices (EDLP)
Pricing products low on a consistent basis/JC Penny tried to do this and it did not work. Mark up less than competition (Garment exploration)
Odd-Even Pricing
Ending the price with certain numbers to influence buyers’ perceptions of the price or product $.95, $.99 or $1.00
Customary Pricing
Pricing certain goods on the basis of tradition, Candy Bars/Gum everyone priced the same.
Prestige Pricing
Setting prices at an artificially high level to convey prestige or a quality image (Cosmetics, Jewelry Mercedes-no real relationship to cost)
Professional Pricing
fees set by people with great skill or experience in a particular field
Price Leader
products priced below the usual markup, near cost, or below cost (loss leader)
Special-Event Pricing
Advertised sales or price-cutting is used to increase sales volume and is linked to a holiday, a season, or other event
Comparison Discounting
The pricing of a product at a specific level and simultaneously comparing it to a higher price
PP Step 6 - Determination of Price
sets price using price strategies
