L11 & 12 pricing strategies Flashcards
what is price
- a statement of value for products or services
- money or other considerations exchanged for the ownership or use of a product/service
what is the price equation
price = list price - incentives and allowances + extra fees
what is value
- what a consumer receives
- the money people are prepared to pay for a product represents its value. price can be a measure of value
what is value pricing
- lower price for less benefits or pay more overall to get more
what is the profit equation
profit = total revenue (unit price x quantity sold) - total cost (fixed + variable cost
what are the 6 steps when setting a price
- identify pricing objectives and constraints
- estimate demand and revenue
- determine cost, volume, and profit relationships
- select an appropriate price level
- set list or quoted price
- make special adjustments to list or quoted price
what should you consider when identifying pricing objectives and constraints
- 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
what are the types of competitive market
- pure competition
- monopolistic competition
- oligopoly
- pure monopoly
what is pure competition
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
what is monopolistic competition
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
what is oligopoly
few sellers who are sensitive to each others prices; some price comp, various differentiation, some advertising to inform but avoid price comp
what is pure monopoly
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
what are some demand factors
- consumer tastes
- price and availability of similar products
- consumer income
compare elastic v inelastic price
- elastic= 1% decrease in price generates more then 1% quantity increase
- inelastic = 1% price decrease produces less than 1% quantity decrease
what is the break even analysis
- the relationship between TR and TC determines profitability at various levels of output
- break even point = fixed cost / (unit price - unit variable cost)
what are the 4 approaches when selecting an appropriate price level
- demand
- cost
- profit
- competition
what are some examples of demand orientated pricing
- 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
what are some examples of cost orientated pricing
-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
what is are some examples of profit orientated pricing
- target profit pricing; setting a price based on an annual target of specific dollar volume of profit
what is an example of competition orientated pricing
- 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
compare fixed v dynamic pricing policy in terms of setting the list or quoted price
- fixed is setting one price for all buyers of a product
-dynamic is setting different prices in real time in response
what are the 3 factors to consider when setting a list or quoted price
- 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
what does it mean to be balancing incremental costs and revenues when setting list or quoted price
marginal analysis involving a continuing, concise trade-off of incremental costs against incremental revenues
what are 3 special adjustments to list or quoted price
- discounts; quantity = price reduction for those who purchase a large amount, seasonal= buying goods out of season, trade, cash
- 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
- 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
