Lecture 10 Price Flashcards

1
Q

Define price

A

The amount of money charged for a product or service, or the sum of all the values that customers exchange for the benefits of having or using the product or service

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2
Q

What happens at a price floor?

A

There are no profits below this price

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3
Q

What is the price floor based on?

A

Product costs

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4
Q

What happens at a price ceiling?

A

There is no demand above this price

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5
Q

What is the price ceiling based on?

A

Consumer perceptions of value

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6
Q

What other factors can influence price?

A

Competition and other external factors such as:

  • competitors’ strategies and prices
  • marketing strategy, objectives and mix
  • nature of the market and demand
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7
Q

What does value-based driving use the perception’s of?

A

This uses the buyers’ perception of value rather than the seller’s cost

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8
Q

How is value-based pricing driven?

A

Value-based pricing is customer driven

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9
Q

How is cost-based pricing driven?

A

Cost-based pricing is product driven

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10
Q

In value-based pricing what is the price set to match?

A

Price is set to match perceived value

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11
Q

What are the stages in cost based pricing?

A

Design a good product
Determine product costs
Set price based on cost
Convince buyers of product’s value

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12
Q

What are the stages in value based pricing?

A

Assess customer needs and value perceptions
Set target price to match customer-perceived value
Determine costs that can be incurred
Design a product to deliver desired value at target price

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13
Q

What are the 4 main customer value-based pricing strategies?

A

Good-value pricing
Everyday low pricing (EDLP)
High-low pricing
Value-added pricing

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14
Q

What is good-value pricing?

A

Offering just the right combination of quality and good service at a fair price

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15
Q

What is EDLP?

A

This involves charging a constant everyday low price with few or no temporary discounts

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16
Q

What is high-low pricing?

A

This involves charging higher prices on an everyday basis but running frequent promotions to lower prices temporarily on selected items

17
Q

What is value added pricing?

A

This attaches value-added features and services to differentiate the company’s offers and thus their higher prices

18
Q

Define cost based pricing

A

This sets prices based on the costs for producing, distributing, and selling the product plus a fair rate of return for effort and risk

19
Q

What are fixed costs?

A

Costs that do not vary with production or sales level

20
Q

Give 4 examples of fixed costs

A

Rent
Heat
Interest
Executive salaries

21
Q

What are variable costs?

A

Costs that vary directly with the level of production

22
Q

Give 2 examples of variable costs

A

Raw materials

Packaging

23
Q

What are total costs?

A

These are the sum of the fixed and variable costs for any given level of production

24
Q

What does cost plus pricing do?

A

Adds a standard mark up to the cost of the product

25
Q

What are the benefits of cost plus pricing?

A

Sellers are certain about costs
Price competition is minimised
Buyers feel it is fair

26
Q

What is a disadvantage of cost plus pricing?

A

Ignores demand and competitor prices

27
Q

What is break-even pricing?

A

This is also known as target return pricing and involves setting a price to break even on costs or make a target return

28
Q

Define competition based pricing

A

This is setting prices based on competitors’ strategies, costs, prices and market offerings

29
Q

What is target costing?

A

This starts with an ideal selling price based on consumer value considerations and then targets costs that will ensure that the price is met

30
Q

What are two organisational considerations to make when considering price?

A

Who should set prices?

Who can influence prices?

31
Q

What relationship is important when setting prices?

A

The relationship between price and demand

32
Q

What are the 4 main types of market?

A

Pure competition
Monopolistic competition
Oligopolistic competition
Pure monopoly

33
Q

What does the demand curve show?

A

The number of units the market will buy in a given period at different prices

34
Q

How are demand and price related?

A

They are inversely related

Higher price = lower demand

35
Q

Define price elasticity

A

This is a measure of the sensitivity of demand to changes in price

36
Q

What is inelastic demand?

A

This is when demand hardly changes with a small change in price

37
Q

What is elastic demand?

A

This is when demand changes greatly with a small change in price