Other Pricing Strategies (10)

Question 1

We previously discussed the pricing models 1. _____ 2. _____ 3. _______ are frameworks for how to begin to calculate your overall pricing schema for your product offerings.

Answer 1

1. cost-based 2. market-based 3. value-based

Question 2

Beyond the three pricing models there are several pricing strategies and tactics to consider. How do companies use these?

Answer 2

in combination with each other and in conjunction with the previously mentioned pricing models.

Question 3

With dynamic pricing, a ______ rate is used for each customer, often based on the product or service’s demand.

Answer 3

variable

Question 4

What are is used for each customer in dynamic pricing?

Answer 4

variable rate

Question 5

what is the variable rate in dynamic pricing based on?

Answer 5

the product or service’s demand

Question 6

Where is dynamic pricing common?

Answer 6

in the hotel and airline industries Chances are, any time you fly in a plane, you’re surrounded by people who have paid different prices to go to the exact same place. And if you’ve ever visited a city during a major sporting or other event, you’ve discovered exactly how much that hotel prices can fluctuate as well. T

Question 7

As demand ________, either because of seasons, holidays, or other circumstances, the price ________ as well.

Answer 7

fluctuates, changes

Question 8

In the airline industry, fees appear to fluctuate without reason and longer flights aren’t always more expensive than shorter ones. But what seems random is actually airlines’ dynamic pricing, using a strategy called….

Answer 8

airline revenue management.

Question 9

Does airline revenue management work in real time or before an order is made?

Answer 9

It works in real time

Question 10

What is the one aim of airline revenue management?

Answer 10

to boost revenues.

Question 11

What generates the prices (makes the decisions) for the dynamic pricing method called airline revenue management?

Answer 11

The decisions are being made by an algorithm.

Question 12

How does the algorithm in airline revenue management create the prices?

Answer 12

it adjusts fares by using information including past bookings, remaining capacity, average demand for certain routes and the probability of selling more seats later. https://www.cnbc.com/2018/08/03/how-do-airlines-price-seat-tickets.html

Question 13

What is flat-rat pricing?

Answer 13

Flat-rate pricing charges one rate for unlimited use of a service during a specified timeframe. It’s also considered flat-rate pricing when a company charges one price, no matter the number of hours required to deliver the good or service.

Question 14

Flat-rate pricing charges _____ rate for ______ use of a service during a specified timeframe

Answer 14

one, unlimited

Question 15

What are examples of flat-rate pricing?

Answer 15

ym memberships and Netflix memberships are examples of flat-rate pricing. Many gyms offer unlimited use by paying one flat fee per month.

Question 16

Gyms using flat-rate pricing are counting on the fact that…

Answer 16

not all of customers will heavily use their membership. The revenue from the light users helps subsidize the heavier users.

• To subsidize something is to support it by providing it with money or other resources.

Question 17

Flat-rate pricing can also apply to the creation of a product where the provider delivers the final product and charges _____ price no matter the _____ of hours required to complete it.

Answer 17

In a simplified example, if a company charges a flat-rate price of $10,000 to design a website, then the company delivers the website for that price regardless of the number of programming hours required to complete it.

Question 18

Why are most customers comfortable with flate-rate pricing?

Answer 18

here is transparency about what they will pay.

Question 19

What are some cons of flate-rate pricing?

Answer 19

in the instance of gym memberships, infrequent users may feel that they are not getting their money’s worth. In fact, companies sometimes encourage no-show consumers to take advantage of their service before they decide to cancel their membership.

And in the instance of flat-rate pricing for product delivery, the company can lose money if they miscalculate the number of hours required to complete a product or service.

Question 20

What does A La Carte translate to?

Answer 20

French term for by the card

Question 21

What is a la carte pricing similar to?

Answer 21

choosing individual items off of a food menu when they hear the term a la carte.

Question 22

What does a la carte pricing mean?

Answer 22

It means that consumers can choose to add and purchase product features individually, giving them a choice about the final price of the product.

Question 23

Give an example of a la carte pricing?

Answer 23

For example, when purchasing a laptop computer from the Dell website, a consumer chooses features such as: the size of the hard drive, the amount of RAM, whether or not the laptop has a touchscreen, and whether or not the hard drive is solid state. The customer can choose to add software options as well.

Question 24

What are the wwo pricing strategies that are commonly used when introducing products to market?

Answer 24

price skimming and penetration pricing

Question 25

price skimming and penetration pricing are on _______ sides of pricing specturm,

Answer 25

opposite

one starts with a high price and then lowers it while the other starts with a low price and then raises it.

Question 26

Price skimming is when a marketer introduces a product into the market at…

Answer 26

an initial high price and then incrementally lowers the price over time.

This pattern of high to low price usually follows the product’s movement along its product life cycle curve.

Question 27

What is the reasoning behind price skimming?

Answer 27

When a product is introduced, there are fewer competitors in the market, and the company can charge a higher price for the product. As time goes on, more competitors or substitutes enter the market and the company can no longer sustain those profit margins. The company can lower the price and sell to the next (more price conscious) customer segment along the product life cycle curve.

Question 28

What is an example of price skimming?

Answer 28

You don’t have to look far to find examples of this. Apple’s iPhone is a famous example of this strategy. Apple introduces the newest version of the iPhone at a high price. By the time the product has made its way through the product life cycle curve, the price of the phone is down to almost nothing, and new versions are being introduced at high prices again.

Question 29

What is market penetration?

Answer 29

when a company introduces a product at a low price to gain market share.

Question 30

What does a marketer using market penetration hope to do?

Answer 30

gaining market share, a company hopes to develop a loyal customer base that will continue to repurchase when the company raises prices.

By entering the market with a low price, a company hopes to dissuade competitors from entering during the growth phase of the product life cycle as the initial profit margins are small.

Question 31

Market penetration is a strategy that helps to provide _____ of _______.

Answer 31

proof of concept

Question 32

what does proof of concept mean?

Answer 32

proof that a product can succeed in the market.

Question 34

Give an example of market penetration:

Answer 34

many examples occur in the technology industry

Many companies launch a new software feature for little to no cost. Take the website Canva, an online editing program where users can create digital promotional designs for free. The site became very popular and gained customers quickly. The company introduced several “premium” features for purchase, but the initial base price of the online service is still free.