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Introduction to marketing > Price > Flashcards

Price Flashcards

1
Q

What is price?

A
  • Price is the amount of money charged for a product or service, or the sum of all the values that customers exchange for the benefits of having or using the product or service.
  • The value that is placed on something.
  • What someone is prepared to give in order to gain something.
  • Price can be a monetary charge, a fee, interest, rates, fares, commission, premiums, tolls etc.
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2
Q

The economist, accountant and the marketing state price is determined by what?

A
  • Demand
  • Costs
  • Value
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3
Q

What are the features of price assessment?

A
  • Quality
  • Financial
  • Personal
  • Operational
  • Functional
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4
Q

What is functional?

A

The design of the product and its ability to fulfil its function.

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5
Q

What is quality?

A

The customer may expect price to reflect the quality level of the product. May pay more for what they perceive to be increased benefits to them. This quality can be tangible or intangible.

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6
Q

What is operational?

A

In B2B markets, how will the product improve operations? If it is considered it will do so significantly then buyers will pay more for a product.

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7
Q

What is financial?

A

What benefit will this give financially, is it worth paying more now and not needing to replace as often? In B2B markets will it get a good ROI?

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8
Q

What is personal?

A

Measure price against intangible, individual, psychological benefits such as status, comfort, self image (remember lecture material on buyer behaviour).

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9
Q

What is price from the sellers perspective?

A

For the seller, the price is a distinctive element of the marketing mix – as it generates REVENUE,which other elements of the mix don’t. The rest of the marketing mix COSTS the seller money

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10
Q

What is the equation for profit?

A
  • PROFIT = TOTAL REVENUE – TOTAL COST
  • Revenue - is the total amount of income generated by the sale of goods or services related to
    the company’s primary operations (can also be known as gross sales), for example quantity sold x unit price
  • Total Cost - in economics, is the sum of all costs incurred by a firm in producing a certain level of
    output, for example costs associated with producing, marketing and selling the product
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11
Q

What is the importance of price to the sellers perspecitve?

A
  • Price does not stand alone from the other elements of the marketing mix.
  • It interacts with them all.
  • It must give out signals that are consistent with those given by the other elements of the
    mix.
  • Price can often be used a scapegoat for poor sales.
  • Price is integrated and harmonious with the rest of the marketing mix – if it isn’t the product will fail!
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12
Q

What are the external influences on pricing decisions?

A
  • Demand and price elasticity
  • Competitors
  • Channels of distribution
  • Legal and regulatory
  • Customers and consumers
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13
Q

What is the classic demand curve?

A

-If the price goes up - demand goes down.
- Can be related to a market or a specific product.

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14
Q

What is the boomerang demand curve?

A
  • Some products with a deep psychological relationship with the customer - think luxury brands can show a reverse price demand curve.
  • Where the higher the price, the higher the demand.
  • As the price goes grown, demand goes down as the product loses its sophistication.
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15
Q

What is the parallel demand curve?

A
  • This curve shows how the demand curve can be shifted upwards through marketing efforts - via the other elements of the marketing mix.
  • If the marketer can offer the customers better value or change their perception of a product, the demand for the product can increase without having to change the price.
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16
Q

What is price elasticity of demand?

A
  • As we have seen, customers can be sensitive to price changes and their demand for a product can change as a result.
  • The way this can be seen on such curves is based on the STEEPNESS of the curve.
  • A very steep demand curve shows a great deal of price sensitivity – a small change in price leads to a big change in demand. Therefore demand is considered ELASTIC – it stretches if pulled by price.
  • A shallower demand curve shows a lower amount of price sensitivity – changes in price do not lead to big changes in demand. Therefore demand is considered INELASTIC – it does not stretch a lot if pulled by price.
17
Q

What is the equation of PED?

A

% change in quantity over the % change in price and = % change in quantity demanded % change in price

18
Q

What are channels of distribution?

A

Must consider the needs and expectations of the others in your distribution chain. They will all have a desired profit margin and therefore the price needs to cover their costs and generate a profit for them as well as it does for you.

19
Q

What are competitors?

A

Have to be made in a competitive context. The level and intensity of competition and the pricing decisions that others make will influence your price. The influence of competition on price will depend on the nature of the product and the number and size of competitors within the market.

20
Q

What are the types of competition?

A
  • Perfect competition: Agricultural markets
  • Monopolistic competition: Restaurants, clothing stores
  • Oligopolistic competition: Automobile industry
  • Pure monopoly: Local utility companies
21
Q

What is perfect competition?

A

No producer has the power to influence or determine price, and the market consists of many small buyers, who similarly cannot influence the market individually.

22
Q

What is monopolistic competition?

A

Where there are many competitors but each has a product differentiated from the rest.

23
Q

What is oligopolistic competition?

A

A competitive situation in which there are only a few sellers (of products that can be differentiated but not to any great extent); each seller has a high percentage of the market and cannot afford to ignore the actions of the others.

24
Q

What is a pure monopoly?

A

A pure monopoly is a single seller in a market or sector with high barriers to entry such as significant startup costs whose product has no substitutes.

25
Q

What are legal and regulatory frameworks?

A

National, European and international policies and frameworks that need to be adhered to. Certain industries will have their pricing policies scrutinised by the Government to make sure they are in the public interest. Duty and Tax would be part of this – these need to be built into the prices charged where appropriate

26
Q

What are internal influences on pricing decisions?

A
  • Organisational objectives
  • costs
  • Marketing objectives
27
Q

What are organisational objectives?

What are marketing objectives?

What are costs?

A
  • What is the organisation trying to achieve? Their USP? Their competitive advantage? And how does price link to this?
  • Developed from overall organisational objectives, what are the marketing objectives needed to meet the organisational objectives?
  • The cost of producing and marketing the product and understanding what this is linked to the markets being targeted.
28
Q

What is the processes of price setting?

A
  • Pricing objectives
  • Demand assessment
  • Pricing policies and strategies
  • Setting the price range
  • Pricing tactics and adjustments
29
Q

What is price skimming?

A
  • Prices are set high to attract the least price sensitive market segments.
  • E.g. – opinion leaders (remember the Diffusion Lifecycle from lecture material 5 Product) or high-end brands.
  • Allows a brand to establish itself as high quality from the outset which could lead to further products at lower prices.
30
Q

What is price penetration?

A
  • Gain a large market share in as quick a time as possible.
  • Price aggressively below competitors.
  • Sacrificing its margins for the sake of volume.
  • Risky – what does the price say about the product quality and brand if priced too low?
31
Q

What is product mix pricing strategy?

A
  • Cannot price in isolation.
  • Product ranges – product lines with product items of varying lengths and depths.
  • Price based on the different options available and the features (and benefits) that the product gives them.
  • For example, the Apple Ipad Pro versus the Apple Ipad.
  • Customers wouldn’t expect or be willing to pay more for products within a range where the features weren’t aligned.
  • Encourages customers to trade up.
  • Also allows for promotions to take place on certain items to price them similar to “lesser models”.
32
Q

What are the 3 main pricing methods?

A
  1. Cost Based
  2. Demand/Value Based
  3. Competition Based Can adopt one of these – or a combination of them depending upon the circumstances.
33
Q

What is cost plus pricing?

What is experience curve pricing?

A
  • Adding a fixed % to the production or construction costs (mainly large
    projects where difficult to estimate costs in advance).
  • Produce more –
    become more experienced, learn from it
    develop efficiencies and EOS (economies of scale).
34
Q

What is demand based pricing?

A
  • Looks outward from production line and more at the customer and how they will respond to different price levels.
  • When linked to competitor pricing it is a powerful market orientated approach for setting prices
  • Demand is strong – price goes up (Holidays within term time for example).
35
Q

What is value based pricing?

A
  • People will pay for what they consider a good product, one that somehow improves their life.
  • But, making such a product and building the confidence of consumers in it is easier said than
    done.
  • For example, for Apple customers, the value of their product is based on:
  • The already existing Apple ecosystem that they’ve built up through purchases
    over the years.
36
Q

What is competition based pricing?

What is a cost leader?

What is a market challenger?

A
  • Dangerous to set just on this basis BUT do
    need to understand competitors as part of
    your macro environmental analysis.
  • Price orientated approach to maintain this position.
  • consider lower prices to steal business short term – But what does that mean longer term for your price and marketing mix?
37
Q

What are some other pricing methods?

A
  • Services Business pricing.
    Average price strategy – setting prices which are average in the industry (linked to competitor).
  • Dynamic pricing – for example on eBay and Amazon, where prices change frequently and in real time based on demand and supply. Airlines also do this with ticket prices.
  • Optional product pricing – selling optional/accessory products along with a main product (e.g., car with GPS navigation systems).
    Product Bundling pricing.
38
Q

What are some price adjustment strategies?

A
  • Discount pricing
  • Cash discount
  • Quantity discount
  • Trade discount
  • Seasonal discount
  • Psychological pricing
  • Promotional pricing
  • Loss leader pricing
  • Special Event pricing

Introduction to marketing (11 decks)

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