LECTURE 8 - PRICING

Question 1

Define price

Answer 1

price is the sum of the values consumers exchange for benefits of using the product or service

Question 2

key considerations of price

Answer 2

• buyers judge price based on product benefits and their satisfaction
• sellers need price to cover costs and generate profit
• if buyer and seller can’t agree on value, no transaction occurs

Question 3

define pricing objectives

Answer 3

• new product introduction
• product image and positioning
• maximizing market share
• generating cash flow and meeting customer expectations

Question 4

what is involved in the regulatory environment of pricing?

Answer 4

pricing cannot be anti-competitive, and laws against:
- price fixing: agreeing to set prices
- minimum resale prices: setting minimum prices for resale
- predatory pricing: setting unrealistically low prices to eliminate competition
- misleading pricing: false or incremental hidden fees (drip pricing)

Question 5

major price strategies (3 Cs)

Answer 5

• product cost: fixed and variable costs
• competitor prices: what competitors are charging
• consumer value perception: what consumers are willing to pay based on perceived value

Question 6

define cost-based pricing

Answer 6

add markup to the cost to determine the price (eg. cost + markup = price)

Question 7

types of costs

Answer 7

• fixed costs: do not vary with production levels
• variable costs: vary directly with production levels

Question 8

define value-based pricing

Answer 8

pricing based on customer perceptions of value rather than the seller’s cost

Question 9

advantages of value based pricing

Answer 9

can maximize returns by pricing based on perceived value

Question 10

challenges based of value-based pricing

Answer 10

requires extensive market research and competitor analysis

Question 11

define competition-based pricing

Answer 11

• prices are set based on competitors prices, not internal costs or demand

Question 12

challenges of competition-based pricing

Answer 12

• ignores unique value proposition
• may lead to price wars and reduced profitability

Question 13

define market skimming

Answer 13

high prices for new products to maximize profits from early adapters

Question 14

define market penetration

Answer 14

low prices to attract a large number of buyers and gain market share

Question 15

define price wars

Answer 15

often arise in industries with low differentiation and high fixed costs (eg. airlines)
- to avoid price wars, companies should focus on differentiation and creating value

Question 16

what are the best pricing practices

Answer 16

• consistently deliver more value
• differentiate, don’t compete on price alone
• avoid opportunistic pricing and focus on long-term strategy

Question 17

consideration of the marketing mix

Answer 17

• product: attributes like brand, quality and features influence perceived value
• place: ensure product availability at expected prices
  -promotion: pricing must align with promotional strategy and product image