MK 14 Pricing Strategy

Question 1

The 5 C’s of Pricing

Answer 1

• Company Objectives
• Customers
• Costs
• Competition
• Channel Members

Question 2

Company Objectives

Answer 2

• 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

Question 3

Price Elasticity of Demand

Answer 3

% 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

Question 4

Factors influencing Price Elasticity of Demand

Answer 4

Income Effect
Substitution Effect
Cross- Price Elasticity (complementary/ substitute)

Question 5

Substitution Effect

Answer 5

ability to substitute other products for the focal brand.

Greater availability of substitutes, the higher the price elasticity

Question 6

Pure Bundle

Answer 6

Only the bundle is offered by seller

Question 7

Pure Components

Answer 7

Only the individual component offered

Question 8

Reason for Price Bundling

Answer 8

• Encourage to try new products
• Encourage the sale of slow-moving items
• Encourage Stock up
• Incentive to purchase

Question 9

Types of Pricing Strategy

Answer 9

Cost-Based
Competitor-Based
Value-Based

Question 10

Value-based Methods

Answer 10

• 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)

Question 11

Pricing Strategies

Answer 11

• Everyday Low Pricing (EDLP): Walmart
• High/ Low Pricing: using sales to temp lower price ( can attract two segments)
• New Product Pricing

Question 12

New Product Pricing

Answer 12

• 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

Question 13

Experience curve effect

Answer 13

Part of Price Penetration to expect per unit cost to decrease when volume sold increases)

Question 14

Pricing Tactic vs Pricing Strategy

Answer 14

Tactic offers short term methods to focus on select components of 5 C’s. Strategy is long-term

Question 15

Rebate

Answer 15

Manufacture issues refund to a portion fo purchase price returned to buyer in cash

Question 16

Leader Pricing

Answer 16

Build store traffic by heavily marketing a regularly purchased item at or just above store’s cost.

Question 17

Price Lining

Answer 17

products or services within a group set at diff prices to show the diff in quality

Question 18

Loss Leader Pricing

Answer 18

Sold at below cost (hoping to get customers in the door)

Question 19

Bait-and-Switch

Answer 19

Pull them in with low price and switch by persuading that the higher price is better quality