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.
What is discount and allowance pricing ?
Reduces prices to reward customer responses such a making volume purchases, paying early, or promoting the product.
When do prices increase ?
o Cost inflation – if the price of raw materials rises, you need to increase your price along with it.
o Increased demand
o Lack of supply
What is predatory fixing ?
Selling of a product not to benefit the consumer but to put competitors out of business.
What is price maintenance ?
When manufacturers requires retailers to charge a specefic price. this is illegal
