Module G (A): Pricing Strategies Flashcards
(17 cards)
What is Price?
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
What is Price Elasticity of Demand?
Price elasticity of demand is the responsiveness in the demand of a product after a change in its price
What are the 3 major pricing strategies?
- Customer-value based pricing
- Cost-based pricing
- Competition-based pricing
Which of the 3 major pricing strategies is considered the best?
Customer-value based pricing
How can customer-value based pricing be defined?
It is when a price is determined according to what the company believes customers are prepared to pay for the proposed items.
What is the sequence of setting a price by using a customer-value based pricing strategy?
- Access customer needs and value perceptions
- Set a target price to match the value that the customer is placing on the product
- Derive the costs that can be incurred when providing the product
- Design a product that delivers the desired value at the target price
What is good value pricing?
The right combination of quality and good service at a fair price
What is value-added pricing?
More benefits and features are added to increase the value of a product - an even higher price can be charged
What is everyday low pricing?
Charging a constant everyday low price with few or no temporary price discounts
What is high-low pricing?
Charging higher prices on an everyday basis but running frequent promotions to lower prices temporarily on selected items
What is cost-based pricing?
When the price of the product is set based on the production costs
What are the 2 types of costs + their meanings
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
What is the total cost?
The sum of the variable and fixed costs for any given level of production
What are the 4 variables of the cost-based pricing strategy?
- Cost as a function of production experience
- Cost plus / markup pricing
- Breakeven pricing
- Target profit
Give definitions for the 4 variables mentioned previously
- Cost as a function of production experience: when the average cost falls as production increases
- Cost Plus / markup pricing: adds a standard markup to the cost of the product
- Break even pricing: setting a price point at which a business will earn zero profits on a sale
- Target profit pricing: the price at which the firm will break or make the profit it’s seeking
What is competitor based pricing?
When a price is set based on competitor’s’ strategies, prices, costs and market offerings
What are the 4 different types of competition via price?
- Pure competition
- Monopolistic competition
- Oligopolistic competition
- Pure monopoly