Price Flashcards
What is price?
Price is the cost of receiving or accessing the benefits of a product over the life of its ownership (not just the initial purchase price).
What are the features of price?
- appeals based on price are easier to communicate
- price changes are more immediate and direct
- short lead time for policy changes
- no initial negative cash flow
Why are price changes more immediate and direct?
firms are able to change (or increase) prices today in order to earn more profit next week. However, trying to obtain more profit by changing their product will take much longer.
Why does short lead time for policy changes?
firms are able to change the policy on their prices in minutes, for e.g. through scanning a barcode and label on shelves (instead of changing stickers on individual boxes)
Why is there no initial negative cash flow?
A price change requires no investment, no spend, no outflow of money (even though it may lead to less inflow if firms reduce their prices).
What is the profit formula?
profits = (price-cost) x unit sales = margin x unit sales
Does price affect the way consumers think and feel about the product?
Yes, price affects the way consumers think and feel about the product. Therefore, firms must be careful when it comes to managing price, as much as they care about the product and promotional campaigns. Price means more than just its dollar value or the cost of acquisition or ownership of the product. There is a great deal of meaning embodied within price; consumers never evaluate a product’s price in isolation. When managing price, firms should consider all aspects of cost to a consumer. The dollar price should not be touched; other aspects of ‘cost’ should be altered before even considering changing the dollar price.
What is price to a customer?
- money
- time
- behavioural
- cognitive activity
- perceived risk
How can we reduce cost of a product for customers?
We can reduce the cost of a product for customers by reducing the time and effort in accessing the value or benefits of the products, instead of reducing the dollar price.
For high involvement products, consumer process the price information by:
- comprehension
- integration
- attitude formation
What is quality assurance pricing?
where price communicates the extra effort expended to produce a superior product that will perform to the customer’s satisfaction.
When is quality assurance pricing particularly effective?
- product performance varies
- Credence goods (a good with qualities that cannot be directly observed by the consumer, making it difficult to assess their utility)
- Costs of product failure or poor performance is high
What do customers typically do when looking at price?
Sometimes consumers will use price as a signal for quality when they do not have enough information to make sense of the price, and lack of certainty.
* Consumers have to look at other cues to understand the credentials of the product.
What is prestige pricing?
Where ownership of high-priced products signals group membership.
*Sometimes consumers will use price as a signal for membership of an exclusive group.
What is prospect theory?
A loss is more significant than the equivalent gain, that a sure gain is favoured over a probabilistic gain, and that a probabilistic loss is preferred to a definite loss.
