Marketing mix: Price Flashcards
Price
Price is 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.
Cost-based pricing
Cost-based pricing sets prices based on the costs for producing, distributing, and selling the product plus a fair rate of return for effort and risk.
Cost-plus pricing
Cost-plus pricing adds a standard markup to the cost of the product.
e.g., Lawyers, accountants, retailers…
* Benefits
* Sellers are certain about costs.
* Price competition is minimized.
* Buyers feel it is fair.
* Disadvantages
* Ignores demand and competitor prices
Break-even pricing
Break-even pricing (target return pricing) is setting price to break even on costs or to make a target return.
Value-based pricing
Value-based pricing uses the buyers’ perceptions of value rather than the seller’s cost.
* Pricing decisions, like other marketing mix decisions, must start with customer value.
* Value-based pricing is customer driven.
Good-value pricing
Good-value pricing - is offering just the right combination of quality and good service at a fair price.
* Introducing less expensive option
* Redesigning existing brands to offer more quality for given price
* Same quality for less
High-low pricing
High-low pricing involves charging higher prices on an everyday basis but running frequent promotions to lower prices temporarily on selected items.
Value-added pricing
Value-added pricing attaches value-added features and services to differentiate the companies’ offers and thus their higher prices.
Competition-based pricing
Competition-based pricing is setting prices based on competitors’ strategies, costs, prices and market offerings.
Market-skimming pricing
Market-skimming pricing strategy sets high initial prices to “skim” revenue layers from the market.
Setting a high price when introducing a new product to
the market
Market-penetration pricing
Market-penetration pricing (low- price strategy) involves setting a low price for a new product in order to attract a large number of buyers and a large market share
Product line pricing
Product line pricing takes into account the cost differences between products in the line, customer evaluations of their features, and competitors’ prices.
Optional product pricing
Optional product pricing takes into account optional or accessory products along with the main product.
Captive product pricing
Captive product pricing sets prices of products that must be used along with the main product.
By-product pricing
By-product pricing sets a price for by-products in order to make the main product’s price more competitive.
Product bundle pricing
Product bundle pricing combines several products at a reduced price.
Discount and allowance pricing
Discount and allowance pricing reduces prices to reward customer responses such as making volume purchases, paying early, or promoting the product.
Segmented pricing
Segmented pricing involves selling a product or service at two or more prices, where the difference in prices is not based on differences in costs.
Types of Segmented Pricing
- Customer-segment pricing - different customers pay
different prices for the same product or service. - Product-form pricing -, different versions of the
product are priced differently - Location-based pricing - a company charges different
prices for different locations - Time-based pricing -a firm varies its price by the
season, the month, the day, and even the hour.
Psychological pricing
Psychological pricing considers the psychology of prices and not simply the
economics; the price is used to say something about the product.
Reference prices
Reference prices are prices that buyers carry in their minds and refer to when they look at a given product.
Promotional pricing
Promotional pricing is characterized by temporarily pricing products below the list price, and sometimes
even below cost, to increase short run sales. Examples include:
* special-event pricing
* limited-time offers
* cash rebates
* low-interest financing, extended warranties, or free maintenance
Geographical pricing
Geographical pricing is used for customers in different parts of the country or the world.
FOB-origin (free on board) pricing is a geographical pricing strategy in which goods are placed free on board a carrier; the customer pays the freight from the factory to the destination.
Uniform-delivered pricing is a geographical pricing strategy in which the company charges the same price plus freight to all customers, regardless of their location.
Zone pricing is a strategy in which the company sets up two or more zones where customers within a given zone pay the same price.
Basing-point pricing means that a seller selects a given city as a “basing point” and charges all customers the freight cost from that city to the customer.
Freight-absorption pricing is a strategy in which the seller absorbs all or part of the freight charges in order to get the desired business.
Dynamic pricing
Dynamic pricing involves
adjusting prices continually to meet the characteristics and needs of individual customers and situations.
International pricing
International pricing involves adjusting prices continually to meet the characteristics and needs of individual
customers and situations.
