Price Flashcards
Price cellings
Customer perceptions of the product’s value set the ceiling for its price.
If customers perceive that the product’s price is greater than its value, they will not buy the product.
too high noone buys
price floor
product costs set the floor for a product’s price.
If the company prices the product below its costs, the company’s profits will suffer.
Factors influencing price include 5
- consumer perceptions,
- product costs,
- competitors’ strategies and prices,
- marketing strategy,
- and market demand.
three major pricing strategies:
customer value-based pricing, cost-based pricing, and competition-based pricing.
Customer value-based pricing
uses buyers’ perceptions of value as the key to pricing.
Value-based pricing means that the marketer cannot design a product and marketing program and then set the price. Price is considered along with all other marketing mix variables before the marketing program is set.
Value-Based Pricing vs. Cost-Based Pricing:
- Cost-Based Pricing:
- Product-driven approach.
- Price determined by covering costs plus a target profit.
- Marketing **emphasizes value at that price **to justify purchase.
- Too high a price leads to lower markups or reduced sales.
- Value-Based Pricing:
Consumer-needs-driven approach.
Begins with understanding customer needs and value perceptions.
Sets** target price **based on perceived value.
Decisions on **costs **and product design follow targeted value and price.
wo types of value-based pricing:
good-value pricing and value-added pricing.
some ways to measure perceived value
surveys, market research, and experiments to gauge perceived value.
Good-Value Pricing Strategy
Offers quality and service at a fair price, meeting consumer value expectations.
4 Good-value pricing approaches
- introduce less-expensive versions of established brand name products or new lower-price lines
- redesign existing brands to offer more quality for a given price or the same quality for less or even more value for less
- Every-day low pricing (for retail): charging a constant, everyday low price with few or no temporary price discounts.
- high low pricing: charging higher prices on an everyday basis but running frequent promotions to lower prices temporarily on selected items.
value-added pricing
attaching value-added features and services to differentiate a company’s offers and charging higher prices
Cost-based pricing
setting prices based on the costs of producing, distributing, and selling the product plus a fair rate of return for the company’s effort and risk.
Fixed costs/overhead
costs that do not vary with production or sales level.
variable costs
vary directly with the level of production
total cost
the sum of the fixed and variable costs for any given level of production
Cost-Plus Pricing Strategy (or markup pricing)
Adding a standard markup to the product cost.
Competition-based pricing
setting prices based on competitors’ strategies, costs, prices, and market offerings.
2 Things to assess competitor’s pricing strategies
- How does the company’s offering compare in terms of customer value against competitors?
- How strong are current competitors, and what pricing strategies do they employ? (weaker competitors charging higher price -> charge low for dominance/lower-price dominant competitors -> target unserved niches with higher value offerings)
Marketing strategy and price alignment
- Price determination follows the overall marketing strategy for a product or service.
- A well-defined target market and positioning guide the marketing mix strategy, including price decisions.
Price help to accomplish company objectives in 6 ways:
- set prices to attract new customers or profitably retain existing ones
- set prices low to prevent competition from entry
- set prices at competitors’ levels to stabilize market
- keep price to keep the loyalty and support of resellers/avoid goverment intervention
- reduced temporarily to create excitement for brand
- one product may be priced to help the sales of other products in the company’sline
target costing
pricing that starts with an ideal selling price (based on customer vale consideration), then targets costs that will ensure that the price is met
Nonprice position
deemphasize price
not to charge the lowest price but rather to differentiate the marketing offer to make it worth a higher price
Pricing decision maker in small companies
Top management
Pricing decision maker in large companies
divisional or product managers
3 pricing decision makersin industrial markets
- top management sets the pricing objectives and policies
- proposed by lower-level management or salespeople
- salespeople may be allowed to negotiate with customers within certain price ranges
Pricing in Different Types of Markets
Pure Competition 3
- Market Structure: Involves numerous buyers and sellers trading in uniform commodities like wheat or financial securities.
- Price Influence: No individual buyer or seller significantly impacts the market price.
- Marketing Role: Minimal to no role for marketing strategies due to uniformity and lack of differentiation in the market.
Monopolistic Competition 3
- Market structure: Comprises numerous buyers and sellers dealing across a range of prices, not a single market price.
- Differentiation Potential: Sellers differentiate their offers to buyers, offering varied products or services.
- Marketing Strategies: Focus on differentiation using branding, advertising, and personal selling, aiming to set offers apart.
Oligopolistic Competition
- Market Structure: Few large sellers dominate the market.
- Competitive Dynamics: Sellers closely monitor and respond to competitors’ pricing strategies and marketing moves.
- Marketing Tools: Price becomes a significant tool; sellers offer discounts, upgrades, and special prices to attract customers.
- Example: In Canada’s cable/satellite TV market, major providers compete by offering discounts and special deals to entice subscribers away from rivals.
3 Types of monopolies
- Government Monopoly: Controlled by the government (e.g., Canada Post).
- Regulated Private Monopoly: Privately owned but regulated by authorities (e.g., power companies).
- Unregulated Private Monopoly: Not regulated by external authorities (e.g., De Beers in the diamond market).
Pure Monopoly
- Market structure: one seller controls the market
-Pricing Approach: Pricing strategies differ based on the type of monopoly and its regulations or lack thereof.
Demand Curve
Illustrates the relationship between the price of a product and the quantity demanded by consumers.
: Consumers may buy less if the price is higher, especially if their budgets are limited.
Demand curve in monopoly
the curve shows total market demand at various prices.
curve demand for competitive markets
demand varies based on competitors’ price changes.
Price Elasticity of Demand
Measures the responsiveness of demand to price changes.
Elastic demand: Quantity demanded changes significantly with price adjustments.
Inelastic demand: Quantity demanded remains relatively stable despite price changes.
Pricing based on elasticity
Elastic demand encourages price reduction for increased total revenue if additional costs don’t exceed the revenue.
why firm avoid pricing strategies that turn their products into commodities
increased consumer price sensitivity from factors like deregulation and easy price comparisons through technology.
Economic Factors in Pricing Decisions (examples and effect)
Economic conditions like recession, inflation, interest rates influence consumer spending, perceptions of value, and company costs.
PRICE Responses to Economic Realities 2
- Price reduction: cut prices and offer discounts to stimulate sales >< reduced margins and potential brand devaluation in the longrun
- Value redefinition: redefining ‘value’ in their offerings (introduce price tiers, lower-priced and premium lines catering to diverse customer segments)
