Lecture 6 (Price) Flashcards
What does price refer to ?
Price does not just refer to money, but the exchange of something
What is the only element of the marketing mix that produces revenue ?
Price
What are the 3 major pricing strategies ?
Cost based pricing
Competition based pricing
Customer value based pricing
What is high-low pricing ?
charging higher prices on an everyday basis but running frequent promotions to lower prices temporarily on selected items
What is sealed bid pricing ?
firm bases price on how it thinks competitors will price rather than on its own cost or on demand.
What happens in oligopolistic competition ?
the sellers monitor each other’s pricing heavily because of the competition.
What happens in monopolistic competition ?
there is competition, but firms manage to differentiate themselves from each other, perhaps through branding
How are price and demand related ?
Inversely
Higher price = lower demand
What is inelastic demand ?
Inelastic demand is when demand hardly changes with a small change in price
When are customers less price sensitive ? 3 answers
− The product is more distinctive
− Buyers are less aware of substitutes
− Buyers cannot easily compare the quality of substitutes
What is the key difference between market skimming pricing and market penetration ?
− Market-penetration pricing involves setting a low price for a new product in order to attract a large number of buyers and a large market share
Market-skimming pricing involves setting a high price for a new product to skim maximum revenues layer by layer from the segments willing to pay the high price
Under what conditions would a company use market skimming pricing ?
When a company needs to recover their research and development investment quickly
When demand is likely to inelastic
Short product life cycle
Under what conditions would a company use market penetration pricing ?
When there is a strong threat of competition
When demand is likely to be elastic
Long product life cycle
What is captive product pricing ?
Sets prices of products that must be used along with the main product.
Give an example of how by product pricing is used ?
Selling of wood chippings by a furniture maker to a paper manufacturer. This means the furniture company doesn’t have to dispose of the wood chippings so they incur no cost there, and they can actually make money from it.
