L11 & 12 pricing strategies

Question 1

what is price

Answer 1

• a statement of value for products or services
• money or other considerations exchanged for the ownership or use of a product/service

Question 2

what is the price equation

Answer 2

price = list price - incentives and allowances + extra fees

Question 3

what is value

Answer 3

• what a consumer receives
• the money people are prepared to pay for a product represents its value. price can be a measure of value

Question 4

what is value pricing

Answer 4

• lower price for less benefits or pay more overall to get more

Question 5

what is the profit equation

Answer 5

profit = total revenue (unit price x quantity sold) - total cost (fixed + variable cost

Question 6

what are the 6 steps when setting a price

Answer 6

1. identify pricing objectives and constraints
2. estimate demand and revenue
3. determine cost, volume, and profit relationships
4. select an appropriate price level
5. set list or quoted price
6. make special adjustments to list or quoted price

Question 7

what should you consider when identifying pricing objectives and constraints

Answer 7

• profit; cost of producing and marketing the product, profit for channel members
• sales revenue
• market share
• survival
• social responsibility
• identify pricing constraints; demand
• newness of product; stage in product life cycle
• single product v product line

Question 8

what are the types of competitive market

Answer 8

• pure competition
• monopolistic competition
• oligopoly
• pure monopoly

Question 9

what is pure competition

Answer 9

many sellers who follow the market price for identical commodity products; almost no price comp as market sets the price, no product differentiation, little advertising

Question 10

what is monopolistic competition

Answer 10

many sellers who compete on non price factors; some price comp, compete over a range of prices, some product differentiation and lots of advertising to differentiate from competitors

Question 11

what is oligopoly

Answer 11

few sellers who are sensitive to each others prices; some price comp, various differentiation, some advertising to inform but avoid price comp

Question 12

what is pure monopoly

Answer 12

one seller who sets the price for a unique product; no price comp as sole seller sets price, no differentiation as no competitors and little advertising, want to increase demand for product class

Question 13

what are some demand factors

Answer 13

• consumer tastes
• price and availability of similar products
• consumer income

Question 14

compare elastic v inelastic price

Answer 14

• elastic= 1% decrease in price generates more then 1% quantity increase
• inelastic = 1% price decrease produces less than 1% quantity decrease

Question 15

what is the break even analysis

Answer 15

• the relationship between TR and TC determines profitability at various levels of output
• break even point = fixed cost / (unit price - unit variable cost)

Question 16

what are the 4 approaches when selecting an appropriate price level

Answer 16

• demand
• cost
• profit
• competition

Question 17

what are some examples of demand orientated pricing

Answer 17

• skimming pricing; setting a higher price to maximise profit margins
• penetration pricing; low initial price to increase market share or max sales volume
• prestige pricing; high price to attract quality or status- conscious consumers
• price lining; setting different price points among products offered
• odd even pricing; 9.99 v 10
• target pricing; estimate price the consumer is willing to pay and work backwards
  bundle pricing; one package with multiple items

Question 18

what are some examples of cost orientated pricing

Answer 18

-standard markup pricing; adding a fixed percentage markup to the cost of all items in a class
- cost plus pricing; retail price = cost + markup
- experience curve pricing; setting a lower the average cost level price on the basis that cost will decrease as production experience increases

Question 19

what is are some examples of profit orientated pricing

Answer 19

• target profit pricing; setting a price based on an annual target of specific dollar volume of profit

Question 20

what is an example of competition orientated pricing

Answer 20

• customary pricing; setting a price on historical price point that customers expect
• above, at or below market pricing
• loss-leader pricing; goods or services offered at deep discounts (sometimes below cost) to attract customers to a store

Question 21

compare fixed v dynamic pricing policy in terms of setting the list or quoted price

Answer 21

• fixed is setting one price for all buyers of a product
  -dynamic is setting different prices in real time in response

Question 22

what are the 3 factors to consider when setting a list or quoted price

Answer 22

• company; product line pricing
• customer; considering factors that satisfy the perception of the customer
• competitive; price war or consider price cutting only when there is an advantage and demand will increase

Question 23

what does it mean to be balancing incremental costs and revenues when setting list or quoted price

Answer 23

marginal analysis involving a continuing, concise trade-off of incremental costs against incremental revenues

Question 24

what are 3 special adjustments to list or quoted price

Answer 24

1. discounts; quantity = price reduction for those who purchase a large amount, seasonal= buying goods out of season, trade, cash
2. allowances; trade in= price reduction of a new item when an old item is given as part of a deal, promotional= incentive to retailers for advertising product
3. geographical; FOB origin pricing= goods are placed free on board a carrier, the customer pays the freight form the factory to the destination, uniform delivered pricing= price the seller quotes includes all transportation costs