Marketing mix: Price

Question 1

Price

Answer 1

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.

Question 2

Cost-based pricing

Answer 2

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.

Question 3

Cost-plus pricing

Answer 3

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

Question 4

Break-even pricing

Answer 4

Break-even pricing (target return pricing) is setting price to break even on costs or to make a target return.

Question 5

Value-based pricing

Answer 5

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.

Question 6

Good-value pricing

Answer 6

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

Question 7

High-low pricing

Answer 7

High-low pricing involves charging higher prices on an everyday basis but running frequent promotions to lower prices temporarily on selected items.

Question 8

Value-added pricing

Answer 8

Value-added pricing attaches value-added features and services to differentiate the companies’ offers and thus their higher prices.

Question 9

Competition-based pricing

Answer 9

Competition-based pricing is setting prices based on competitors’ strategies, costs, prices and market offerings.

Question 10

Market-skimming pricing

Answer 10

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

Question 11

Market-penetration pricing

Answer 11

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

Question 12

Product line pricing

Answer 12

Product line pricing takes into account the cost differences between products in the line, customer evaluations of their features, and competitors’ prices.

Question 13

Optional product pricing

Answer 13

Optional product pricing takes into account optional or accessory products along with the main product.

Question 14

Captive product pricing

Answer 14

Captive product pricing sets prices of products that must be used along with the main product.

Question 15

By-product pricing

Answer 15

By-product pricing sets a price for by-products in order to make the main product’s price more competitive.

Question 16

Product bundle pricing

Answer 16

Product bundle pricing combines several products at a reduced price.

Question 17

Discount and allowance pricing

Answer 17

Discount and allowance pricing reduces prices to reward customer responses such as making volume purchases, paying early, or promoting the product.

Question 18

Segmented pricing

Answer 18

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.

Question 19

Types of Segmented Pricing

Answer 19

• 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.

Question 20

Psychological pricing

Answer 20

Psychological pricing considers the psychology of prices and not simply the
economics; the price is used to say something about the product.

Question 21

Reference prices

Answer 21

Reference prices are prices that buyers carry in their minds and refer to when they look at a given product.

Question 22

Promotional pricing

Answer 22

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

Question 23

Geographical pricing

Answer 23

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.

Question 24

Dynamic pricing

Answer 24

Dynamic pricing involves
adjusting prices continually to meet the characteristics and needs of individual customers and situations.

Question 25

International pricing

Answer 25

International pricing involves adjusting prices continually to meet the characteristics and needs of individual
customers and situations.