Price Flashcards
WHat is price
The only element of the marketing mix that directly
produces revenue
-Most flexible marketing mix element
-Top factor in consumer choice
price
Money/value exchanged for
ownership or use of a product
* Could include non-monetary
payments
* Value is subjective
* one person’s trash is another’s
treasure
Good pricing requires
Economics
* Psychology
* Statistics
* Operations Research
* Computer Science
* Courage
pricing is a balancing act.what is a price floor
cost to the firm
what is a price ceilling
value to the consumer (WTP)
price is between price floor and ceilling
Factors that affect price
Price sensitivity
* Availability and awareness of substitutes
* Ease of comparison
* Expense (relative value in bundle)
* Shelf-life / ability to stockpile
Competition and competitors’ prices
* Pure monopoly, oligopoly, monopolistic competition, pure competition
Stage in the PLC
* Early or late
** Industry practices & law/regulations**
when price is more toward firm cost its an
elastic demand
when price is more towards consumer value its an
inelastic demand
How to guess price sensitivity
without data
Availability and awareness of
substitutes
* Ease of comparison
* Expense (relative value in bundle)
* Shelf-life (ability to stockpile
what is total expenditure
If you spend more on a
product, you tend to be more
price sensitive
bigger families are more
price sensitive for grocerie
Fraction of total costs (expense & relative value in bundle)
if item is larger % of total cost, you are more price sensitive
What are the types of competition
pure competition
monopolistic competition
oligopoly
pure monopoly
LOOK AT table
Pricing as a tug of war. when price is at consumer valuation
Weak competition and/or high prices from competitor
Strong point of difference = inelastic consumer demand
* No suitable substitutes
* Early stages of the PLC
* no alternative are available
Price as a tug of war ; price is at firms cost
Intense competition and/or low prices from competitors
* More substitutes = elastic consumer demand
* Less differentiated products
* Awareness & accessibility of substitutes (cross-price elasticity is high)
* Late stages of the PLC
Pricing objectives and constraints
Profit
* Find price that maximizes profit
* Find price that gives set ROI (%)
Sales
* Maximize market share
* Maximize customer bas
Brand Image
* Luxury good
* EDLP (EveryDay Low Pricing
Survive Competition
* Price-matching to combat
showrooming
Social Responsibility
* Public goods
* Progressive pricing
Base the price on
Cost
Competitors
Value to Customers
desired profit
Cost oriented approaches
Standard markup: typical markup % for a particular category
-common in commodity markets
e.g., < 15% food in grocery retail;
* > 50% for prepared food in restaurants;
* Up to 500% for alcoholic beverage
Competitor - oriented approaches
above, at ,below market pricing:
prices dictated by competitors
loss-leader pricing: pricing far below competition (and even variable cost) - get customers into the store
Value oriented approaches
skimming
penetration
prestige
price lining
dynamic pricing
pay what you want
what is skimming
price high at the beginning and lowering prices as time passes
* Faster way of recouping high R&D costs
* Capture price-insensitive consumers early and price sensitive consumers later
What is penetration
Price low at lauch of product.
higher volume, less attractive for competitive entry
What is prestige
price high to signal quality/ reinforce brand positioning
what is price lining
create different products at various price levels
