Module G (A): Pricing Strategies Flashcards

(17 cards)

1
Q

What is Price?

A

Price is the amount of money charged for a product or service; the sum of the values that consumers exchange for the benefits of having or using the product or service.

ADDITIONAL: the amount that customers are willing to pay in exchange for a set of benefits derived from using that product/service

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2
Q

What is Price Elasticity of Demand?

A

Price elasticity of demand is the responsiveness in the demand of a product after a change in its price

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3
Q

What are the 3 major pricing strategies?

A
  1. Customer-value based pricing
  2. Cost-based pricing
  3. Competition-based pricing
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4
Q

Which of the 3 major pricing strategies is considered the best?

A

Customer-value based pricing

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5
Q

How can customer-value based pricing be defined?

A

It is when a price is determined according to what the company believes customers are prepared to pay for the proposed items.

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6
Q

What is the sequence of setting a price by using a customer-value based pricing strategy?

A
  1. Access customer needs and value perceptions
  2. Set a target price to match the value that the customer is placing on the product
  3. Derive the costs that can be incurred when providing the product
  4. Design a product that delivers the desired value at the target price
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7
Q

What is good value pricing?

A

The right combination of quality and good service at a fair price

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8
Q

What is value-added pricing?

A

More benefits and features are added to increase the value of a product - an even higher price can be charged

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9
Q

What is everyday low pricing?

A

Charging a constant everyday low price with few or no temporary price discounts

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10
Q

What is high-low pricing?

A

Charging higher prices on an everyday basis but running frequent promotions to lower prices temporarily on selected items

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11
Q

What is cost-based pricing?

A

When the price of the product is set based on the production costs

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12
Q

What are the 2 types of costs + their meanings

A

Fixed Costs - costs that don’t vary with production or sales
-> rent
-> heat
-> interest

Variable Costs - costs that vary directly with the sales and level of production
-> packaging
-> raw materials
-> sales force salaries and commissions

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13
Q

What is the total cost?

A

The sum of the variable and fixed costs for any given level of production

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14
Q

What are the 4 variables of the cost-based pricing strategy?

A
  1. Cost as a function of production experience
  2. Cost plus / markup pricing
  3. Breakeven pricing
  4. Target profit
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15
Q

Give definitions for the 4 variables mentioned previously

A
  1. Cost as a function of production experience: when the average cost falls as production increases
  2. Cost Plus / markup pricing: adds a standard markup to the cost of the product
  3. Break even pricing: setting a price point at which a business will earn zero profits on a sale
  4. Target profit pricing: the price at which the firm will break or make the profit it’s seeking
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16
Q

What is competitor based pricing?

A

When a price is set based on competitor’s’ strategies, prices, costs and market offerings

17
Q

What are the 4 different types of competition via price?

A
  1. Pure competition
  2. Monopolistic competition
  3. Oligopolistic competition
  4. Pure monopoly