MK 14 Pricing Strategy Flashcards
The 5 C’s of Pricing
- Company Objectives
- Customers
- Costs
- Competition
- Channel Members
Company Objectives
- Profit- Oriented (target profit pricing, maximizing profits, target return pricing)
- Sales- Oriented
- Competitor Oriented (competitive parity = set prices similar, status quo pricing = meet those of competition)
- Customer Oriented
Price Elasticity of Demand
% Change in Demand / % change in price
less than -1 is elastic (for every 1% decrease in price, 5% increase in Q sold)
Greater than 1 inelastic
Factors influencing Price Elasticity of Demand
Income Effect
Substitution Effect
Cross- Price Elasticity (complementary/ substitute)
Substitution Effect
ability to substitute other products for the focal brand.
Greater availability of substitutes, the higher the price elasticity
Pure Bundle
Only the bundle is offered by seller
Pure Components
Only the individual component offered
Reason for Price Bundling
- Encourage to try new products
- Encourage the sale of slow-moving items
- Encourage Stock up
- Incentive to purchase
Types of Pricing Strategy
Cost-Based
Competitor-Based
Value-Based
Value-based Methods
- Improvement Value: how much more customers are willing to pay for a product relative to other comparable products
- Cost of Ownership: may be willing to spend more because over a lifetime, cost less to own (luxury watches)
Pricing Strategies
- Everyday Low Pricing (EDLP): Walmart
- High/ Low Pricing: using sales to temp lower price ( can attract two segments)
- New Product Pricing
New Product Pricing
- Price Skimming (willing to pay a higher price for a brand new product)
- Price Penetration (set low in the beginning to build sales and market share
Experience curve effect
Part of Price Penetration to expect per unit cost to decrease when volume sold increases)
Pricing Tactic vs Pricing Strategy
Tactic offers short term methods to focus on select components of 5 C’s. Strategy is long-term
Rebate
Manufacture issues refund to a portion fo purchase price returned to buyer in cash