Price Management

Question 1

Definition of the (perceived) value of an offering

Answer 1

a ratio of the bundle of benefits a customer receives from an offering compared to the costs incurred by the customer in acquiring that bundle of benefits

Question 2

What hat to be taken into consideration for developing a pricing strategy?

Answer 2

branding and product decisions, service approaches, supply chain, and marketing communication

price (or the customer´s perception of the price) is a key determinant of perceived value!

Question 3

Process of managing pricing decision

Answer 3

1) Establish pricing objectives and related strategies
2) Select pricing targets
3) Set the exakt price
4) Determine channel discounts and allowance
5) Execute price changes
6) Understand legal considerations in pricing

Question 4

Definition pricing objectives

Answer 4

the desired or expected result associated with a pricing strategy

Question 5

What´s important about pricing objectives?

Answer 5

must be consistent with other marketing-related objectives (e.g., positioning and branding) as well as with the firm’s overall objectives for doing business

Question 6

Name 2 general Pricing strategies

Answer 6

1) Penetration pricing
2) Price skimming

Question 7

Penetration pricing

Answer 7

-Used to gain- maximum market share.
-Price sensitive customers.
-Firm’s internal efficiencies lead to cost advantages which allows lower price.
-Sometimes used for new product introduction.

Question 8

Why to be careful with penetration pricing?

Answer 8

-Price influences customer perception of quality.
-Customers prefer lowering price, not raising it.
-Changing price confuses positioning and brand image.

Question 9

Price skimming

Answer 9

-Initial high price indicates a strong price-quality relationship.
-Used by firms with first-mover advantage with high level of panache and exclusivity (e.g., electronics, pharmaceuticals).
-Used effectively in niche markets with few competitors

Question 10

When does maintaining skimming become difficult?

Answer 10

If the product moves from a niche to a differentiated product -> more competition

Question 11

Explain pricing strategie profit maximization and target ROI

Answer 11

-Bottom-line profit is set and then price to meet the target profit.
-Price elasticity of demand (e.g., Will consumers buy at the target ROI price?)

Question 12

Explain competitor-based pricing

Answer 12

-At the competitor’s price or slightly above or below.
-Price war occur when one competitor tries to gain sales and net market share.
-.tability pricing is a neutral set point that doesn’t irk competitors or endanger the value proposition

Question 13

Explain stability pricing

Answer 13

-In stability pricing, the firm tries to find a neutral set point that is neither too low to irritate the competition or too high to risk the value proposition with customers.
-Can provide a competitive advantage in markets that have rapidly changing prices

Question 14

Example stabiltiy pricing

Answer 14

Southwest Airlines bases fares on actual distance traveled rather than load maximization formulas of other airlines. Southwest has only a few stable fares for each flight

Question 15

Explain value pricing

Answer 15

-Value pricing overtly attempts to take into account the role of price as it reflects the bundle of benefits sought by the customer.
-Considers the whole deliverable and all sources of differential advantage—image, service, product quality, personnel, innovation—that create customer benefit.

Question 16

Dimensions Generic-PriceQuality Positioning Map

Answer 16

Low quality - high quality
high price - low price

Question 17

Which positions of the generic price-quality positioning map are feasible?

Answer 17

Low quality low price
high quality high price
+bigger area in the middle

Question 18

Define pricing tactic product line pricing

Answer 18

Price points reflect different benefits at different prices.
-Hotel rooms, autos, appliances or different brands like Ritz-Carlton, Marriott, Fairfield Inn, Courtyard

Question 19

Define pricing tactic captive pricing

Answer 19

-Also called complementary pricing or “razors and blades” like printers and ink cartridges.
-In the service sector may be called two-part pricing for firms that charge a monthly fee and then bills for specific services like a gym membership and personal trainer fees

Question 20

Define pricing tactic price bundling

Answer 20

allows customers to buy a package deal at a lower price than if items bought separately (e.g. cable TV, landline phone service, and Internet)

Question 21

Define pricing tactic reference pricing

Answer 21

-Store brands on the shelf next to national brands.
-Used heavily in B2B price lists

Question 22

Define pricing tactic prestige pricing

Answer 22

Higher than the competition like luxury goods or ultra-premium products; leads to higher profits (e.g., Voss water).

Question 23

Define one-price pricing

Answer 23

-With one-price, there is no bargaining. Everyone pays the same for most goods in the United States.
-Variable pricing allows for haggling and is more common around the world

Question 24

Define price tactic odd/even pricing

Answer 24

-Odd has no whole dollars (e.g., $1.98 or $1.99).
-Even is only whole dollars (e.g. $2.00).
-Developed before sales tax and credit cards to bolster cash register security and reduce employee theft.
-Today is a key element in psychological pricing

Question 25

Define pricing tactic auction pricing

Answer 25

-More popular due to the Internet (e.g., eBay).
-Reverse auctions sellers bid for buyers (e.g., Priceline) –> somewhat similar to a tender

Question 26

Define pricing tactic EDLP and high/low pricing

Answer 26

-EDLP reduces investment in promotion
-High/low uses heavy promotional pricing and customers wait for the best price.

Question 27

Strategies to set the exact price

Answer 27

-Cost-Plus Pricing/Markup on Cost
-Markup on Sales Price
-Average-Cost Pricing
-Target Return Pricing

Question 28

Define discounts

Answer 28

Discounts are direct, immediate reductions in price provided to purchasers.

Question 29

Define allowances

Answer 29

Allowances remit monies to purchasers after the fact.

Question 30

Types of discounts

Answer 30

1) Cash discounts
2) Trade discounts
3) Quantity dscounts
4) Seasonal discounts
5) Promotional allowances

Question 31

Geographic pricing strategies (hier Recherche)

Answer 31

1) FOB pricing (buyer pays for all costs from loadin on ship on but the freight is organized by seller)
2) Uniform Delivered pricing (all customers pay same transport prices regardless of location)
3) Zone Pricing (all clients which live in the same sone pay the same price, mostly correlating with distance to dispatch point)

Question 32

What to do before changing prices

Answer 32

-conduct market research to gain knowledge about customers expected reaction
-change in price can dramatically impact the other elements of the marketing mix

Question 33

Define JND

Answer 33

Just noticeable difference (JND) is the amount of price increase that can be taken without affecting customer demand

Question 34

Name legal considerations in pricing

Answer 34

Price Fixing
Price Discrimination
Deceptive Pricing
Predatory Pricing (non-profitable prices to push smaller competirots out of the market)
Fair Trade and Minimum Markup Laws (minimum prices for products, e.g. gas)

Question 35

Define price ceiling and price

Answer 35

Price ceilings are government-imposed maximums on price of certain goods whereas price floors are minimums on the price. The prices are kept between certain levels.

Question 36

When are price ceilings and floors used?

Answer 36

It is usually done to protect buyers and suppliers or manage scarce resources during difficult economic times

Question 36

Effects of price ceilings on the market

Answer 36

-price is limited and will not develop as it would under free market conditions
-thus demand may exceed supply
-can be problematic and cause problems as declining quality or production stops of the good

Question 37

Example price ceilings

Answer 37

-price ceilings on rents in many cities
-demand thus is higher than price which is set
-landowners may convert their flats in AirBnBs, condos etc.

Question 38

Describe price floors

Answer 38

-are not often introduced for manufactured goods -> often not benefitial for anyone
-they are often used if it becomes important to protect certain groups
-often agriculture

Question 39

General effects of price floors and price ceilings

Answer 39

-don´t cause demand or supply to change
-they only can cause a different choice of quantity demanded as it cannot be demanded more
-but demand curve doesn´t change

Question 40

Definition price war

Answer 40

A price war describes a doward spiral of competitors lowering prices. One competitor initially lowers prices to gain more market share and others follow as the apply competitor-based pricing.

Question 41

Factors that increase the likleyhood of price wars in grocery industry

Answer 41

-advanced in the product life cycle -> maximum market potential is reached
-heavy competition (many competitors)
-few elements to differentiate the products
-to gain market share companies must lower prices (if product cannot be differentiated differently)

Question 42

Why is ROI pricing not always recommendable

Answer 42

-doesn´t take market in consideration -> may be oupriced or not fitting to communication strategy
-can be perceived negatively if the product is scarce but necessary for living (e.g. medicine or technological equipment for emerging countries)

Question 43

Problems competitor-based pricing

Answer 43

-price wars
-customer value not projected and to high prices

Question 44

Problems price bundling

Answer 44

-may be unethical as it is not transparent what the seperate items cost
-price bundles can force customers into buying more adittional features than they intendet to (e.g. car features)

Question 45

Hausmarke

Answer 45

-privae-label
-white-label

Question 46

Define trade discounts

Answer 46

-provide an incentive to a channel member for performing some function in the channel that benefits seller
-e.g. stocking a seller´s product or performing a service as repair

Question 47

Define seasonal discounts

Answer 47

-reward the purchaser for shifting part of the inventory
storage function away from the manufacturer (buys in a different season)

Question 48

Define promotional allowances

Answer 48

• if sellers promote purchases to support their promotional strategies they pay promotional allowances
  -e.g. retailer runs an ad for a manufacturer´s product

Question 49

Define FOB pricing

Answer 49

FOB-factory: purchaser pays freight and takes title from the moments the goods are placed on the transportation vehicle

FOB-destination: seller pays freight and holds title unitl the goods arrive at the pruchasers location