Price Management Flashcards
Definition of the (perceived) value of an offering
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
What hat to be taken into consideration for developing a pricing strategy?
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!
Process of managing pricing decision
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
Definition pricing objectives
the desired or expected result associated with a pricing strategy
What´s important about pricing objectives?
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
Name 2 general Pricing strategies
1) Penetration pricing
2) Price skimming
Penetration pricing
-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.
Why to be careful with penetration pricing?
-Price influences customer perception of quality.
-Customers prefer lowering price, not raising it.
-Changing price confuses positioning and brand image.
Price skimming
-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
When does maintaining skimming become difficult?
If the product moves from a niche to a differentiated product -> more competition
Explain pricing strategie profit maximization and target ROI
-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?)
Explain competitor-based pricing
-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
Explain stability pricing
-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
Example stabiltiy pricing
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
Explain value pricing
-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.
Dimensions Generic-PriceQuality Positioning Map
Low quality - high quality
high price - low price
Which positions of the generic price-quality positioning map are feasible?
Low quality low price
high quality high price
+bigger area in the middle
Define pricing tactic product line pricing
Price points reflect different benefits at different prices.
-Hotel rooms, autos, appliances or different brands like Ritz-Carlton, Marriott, Fairfield Inn, Courtyard
Define pricing tactic captive pricing
-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
Define pricing tactic price bundling
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)
Define pricing tactic reference pricing
-Store brands on the shelf next to national brands.
-Used heavily in B2B price lists
Define pricing tactic prestige pricing
Higher than the competition like luxury goods or ultra-premium products; leads to higher profits (e.g., Voss water).
Define one-price pricing
-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
Define price tactic odd/even pricing
-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
Define pricing tactic auction pricing
-More popular due to the Internet (e.g., eBay).
-Reverse auctions sellers bid for buyers (e.g., Priceline) –> somewhat similar to a tender
Define pricing tactic EDLP and high/low pricing
-EDLP reduces investment in promotion
-High/low uses heavy promotional pricing and customers wait for the best price.
Strategies to set the exact price
-Cost-Plus Pricing/Markup on Cost
-Markup on Sales Price
-Average-Cost Pricing
-Target Return Pricing
Define discounts
Discounts are direct, immediate reductions in price provided to purchasers.
Define allowances
Allowances remit monies to purchasers after the fact.
Types of discounts
1) Cash discounts
2) Trade discounts
3) Quantity dscounts
4) Seasonal discounts
5) Promotional allowances
Geographic pricing strategies (hier Recherche)
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)
What to do before changing prices
-conduct market research to gain knowledge about customers expected reaction
-change in price can dramatically impact the other elements of the marketing mix
Define JND
Just noticeable difference (JND) is the amount of price increase that can be taken without affecting customer demand
Name legal considerations in pricing
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)
Define price ceiling and price
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.
When are price ceilings and floors used?
It is usually done to protect buyers and suppliers or manage scarce resources during difficult economic times
Effects of price ceilings on the market
-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
Example price ceilings
-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.
Describe price floors
-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
General effects of price floors and price ceilings
-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
Definition price war
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.
Factors that increase the likleyhood of price wars in grocery industry
-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)
Why is ROI pricing not always recommendable
-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)
Problems competitor-based pricing
-price wars
-customer value not projected and to high prices
Problems price bundling
-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)
Hausmarke
-privae-label
-white-label
Define trade discounts
-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
Define seasonal discounts
-reward the purchaser for shifting part of the inventory
storage function away from the manufacturer (buys in a different season)
Define promotional allowances
- if sellers promote purchases to support their promotional strategies they pay promotional allowances
-e.g. retailer runs an ad for a manufacturer´s product
Define FOB pricing
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
