Price Flashcards
How important is price for shareholder value?
Price is the most important marketing mix variable for corporate value.
What is the implication of price importance?
Price competition can have a devastating effect on profitability. It often makes sense to defend prices rather than to defend volume.
Which factors are affecting the management of price?
The information revolution is destroying the simplicity of uniform pricing and bringing back individually negotiated prices. With more information available, markets are becoming more price sensitive.
What are the major, traditional pricing concepts?
Mark-up pricing and target-return pricing.
What are the fundamental problems with the pricing concepts?
They ignore demand, they ignore the perceived value of the product to the customer, they ignore the value created by effective marketing and they ignore competition.
What is the first principle that underlies effective pricing?
Pricing should be based on the value that the product offers to customers, not on its costs of production.
What is the second principle that underlies effective pricing?
Since different customers attach different values to a given product, prices should be customised.
What is the third principle that underlies effective pricing?
Pricing decisions should anticipate the reactions of competitors and their long run objectives in the market.
What is the fourth principle that underlies effective pricing?
Pricing should be integrated with a firm’s broad strategic positioning. That is, prices have to be designed to fit into a firm’s market position strategy.
What is the customer surplus?
Customer surplus is the difference between the price the customer would be willing to pay for a product and the price the customer actually pays.
What is the solution to minimise consumer surplus?
Charge different prices to different customers.
The companies reactions and the ability to shape the responses depend on the nature of the industry, such as?
Number of competitors, differences among competitors, price transparency and any short-term price gains from price cutting.
How does cooperation in pricing manifest itself ?
In price signaling. Involves tactics to make transparent what a firm’s objective is. Trust among competitors is created. In tit-for-tat. Involves matching the competitor’s price moves, thus not undercutting it.
What has beens the typical approach to the price-strategy relaionship?
design the product, determine the costs to make it, observe the competitor’s prices, set own prices for the product and position the product in the target market segment with a brand at the set price.
When does price determines cost?
Price determines cost if shareholder value is to be maximised.
