Module 15: Pricing Strategies Flashcards
What does price do?
Generates sales revenue and profits
Sends signal about quality, exclusiveness, availability
Powerful weapon in markets -drive out competitors, barriers to entry, price following
What are the 4Cs influences on pricing?
Customers
Competition
Corporate objectives
Costs
What do businesses consider for customers in terms of pricing?
How much customers are prepared to pay?
What do businesses consider for competition in terms of pricing?
Nature and level of competition
Keener the competition the lower the price
Monitor changes by others
To remain competitive
What do businesses consider for corporate objectives in terms of pricing?
Appropriate level can enable businesses to achieve its objectives of profits, revenues, market share, brand recognition, accessibility etc
What do businesses consider for costs in terms of pricing?
Revenue must exceed costs over the long term for the business as a whole
Price set at level that exceeds costs
How can info about how customers behave if prices are changed be obtained?
Historical data of past prices and quantities sold
Pricing experiments and pilot marketing studies
Market research
What factors affect customer reactions to a change in price?
Proportion of total income
Substitutes
Level of necessity
Marketing strategy e.g. ads
What are the influences on demand?
Increasing income
Complements- related goods
Tastes
How does increasing income affect demand?
Normal goods- demand rises in line with income
Inferior goods- demand falls if income rises
Static goods- unchanged demand e.g. salt
Influences of competition on pricing decision?
Intense competition- aggressive competitors with low barriers to entry, price competition intense and customers very price sensitive
Reduced competition- limited competitors, company more powerful than its competitors
If the produce is mature?
Price competition will be intense between a few key players
Price increases followed
Reactions to competitors price changes?
Maintain the current level of price- small share at risk, ignore
Maintain current level of price but adopt alternative marketing strategies
Reduce prices- beneficiary is customer
What should pricing take into consideration?
Available resources
Corporate image
Target markets
Product positioning
Pricing for market penetration?
Low price to achieve good penetration
Discourage from entering market
Economies of scale, costs reduce in long run
Early losses compensated by returns in growth and maturity
Pricing for market skimming?
High prices for a new products
Considerable amount spent on ads and marketing
As matures lower prices charges
Pay premium for new and different products
Suit an org with less liquidity
Pricing for perceived value?
Marketing orientated way of setting prices
Determined by perceived value of product to customer
What is full cost pricing?
Cost plus pricing
Percentage amount to the cost of production
Full cost includes non-production overheads
Advantage of full cost pricing?
Aims to recover all costs
Disadvantages of full cost pricing?
Leads to lack of responsiveness to the market and demand conditions
Advantages of marginal cost plus pricing?
Straightforward and simple to apply
Offers flexibility in price setting to meet market conditions
Marginal cost is floor below which prices should not fall
Disadvantages of marginal cost plus pricing?
Too much price flexibility can draw unfavourable customer reactions
Ignores fixed costs so dangerous in long term
Benefits of target return on investment?
Relation of selling prices to investment and total cost structure
Mark-up cost is linked to investment returns
Disadvantages of target return on investment?
Price/demand relationship ignored
Rigid price setting approach
‘Standard’ volume, this will fluctuate so variations in financial performance
