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Marketing Management > Price Strategy > Flashcards

Price Strategy Flashcards

1
Q

What is value?

A

The ratio of perceived benefits to price

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2
Q

What is base price?

A

The price of one unit of the product or service before discounts

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3
Q

What is the selling price?

A

It is the price at which a product is sold. Selling price=Base price-Discounts

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4
Q

What does price determine?

A

Price determines the demand and supply of products in the economy system.

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5
Q

What does price mean to consumers?

A

It signals value and quality

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6
Q

What does price mean to marketers?

A

It is the only marketing mix element that produces revenue, it has flexibility, consumers are responsive to price, and it is a differentiation/positioning tool.

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7
Q

Why is pricing often times overlooked?

A

Because people may make decisions based of off tradition/heuristics. Little research is also done on price.

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8
Q

What are the common pricing mistakes?

A

Reducing prices too quickly to get sales, and pricing based on costs, not customer value.

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9
Q

What is the price decision process?

A
  1. Develop pricing objectives
  2. Evaluate factors affecting price decisions
  3. Determine price base
    Develop pricing tactics
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10
Q

What are the pricing goals?

A

They are either profit oriented, sales oriented, or survival oriented

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11
Q

What are the factors to consider when pricing?

A

1.Customer perceptions of value
- Price ceiling(No demand above this price)
2. Other internal and external considerations
- Marketing and strategy goals
-Market and demand
-Competition
-Consumer psychology
3. Product costs
- Price floor(No profit below this price)

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12
Q

What is cost based pricing vs. value based pricing?

A

Cost-Based Pricing: A pricing strategy where the price of a product is determined by adding a markup to the cost of producing or acquiring the product. The focus is on covering costs and achieving a desired profit margin.

Value-Based Pricing: A pricing strategy where the price is set based on the perceived value of the product to the customer, rather than the cost to produce it. The focus is on what consumers are willing to pay based on the product’s benefits and market demand

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13
Q

What is a fixed costs?

A

When there are costs that do not vary with sales or production levels like rent

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14
Q

What are variable costs?

A

They vary directly with the production volume such as raw materials.

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15
Q

What is total cost

A

Total fixed costs + Total variable costs

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16
Q

What are cost and price factors?

A

Cost as a price floor, and for many products price is not directly related to costs

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17
Q

What is the break even point?

A

Total Revenue=Total cost

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18
Q

What do sales that exceed break even point mean? Same with loss?

A

Sales that exceed are profits and sales that don’t are losses

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19
Q

How do you calculate break even point in units?

A

Total fixed cost/selling price-variable cost

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20
Q

What pricing factors do you consider with marketing strategy?

A

Target customers and your position strategy are strongly influenced by price

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21
Q

What product elements are affected by price?

A

Product life cycle, product quality, and benefits

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22
Q

What distribution factors are affected by price?

A

Types of distribution outlets and where they are located

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23
Q

What promo factors are affected by price?

A

Sales promotion

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24
Q

What relation do price and demand have?

A

Price and Demand Inversely Related: This means that as the price of a product increases, the demand for it tends to decrease, and vice versa. Consumers are typically less willing to buy a product at higher prices and more willing to purchase it when prices are lower, reflecting a negative relationship between the two.

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25
Q

Price elasticity calculation?

A

%change in demand/%change in price

26
Q

What factors influence price elasticity?

A

Number of substitutes, and the amount of differentiation or preferences toward brand price quality relationship.

27
Q

What does it mean when the price elasticity is low vs high?

A

PE is low: Increase profit by increasing price

PE is high: Increase profit by decreasing price

28
Q

What competition factors influence price?

A

The types of market which are monopolistic, oligopolistic, and pure competition. Competitors price and costs also influence price

29
Q

What is reference price in consumer psychology as a part of price perception?

A

-Internal Price: The price a consumer expects based on their personal experiences, preferences, and prior purchases.

-External Price: The price influenced by external factors, such as competitors’ prices, market conditions, or promotional offers.

-Price Context: The overall situation or environment in which a price is perceived, including factors like timing, location, and surrounding product options, which affect how the price is evaluated by consumers.

30
Q

What are price properties?

A

-9-Ending Pricing: A pricing strategy where prices end in .99 or .95 to make them appear lower (e.g., $9.99 instead of $10.00). It leverages consumer perception of prices being significantly lower.

-Face Value Effect: A pricing tactic where consumers focus on the nominal value of a price rather than its underlying value, making larger numbers seem more substantial (e.g., $1000 vs. $999.99).

-Price Precision: The level of detail in pricing, such as using exact numbers (e.g., $5.75) vs. rounded figures (e.g., $6). More precise pricing can imply higher quality or value.

-Pennies-per-Day (PAD): A pricing strategy where the cost is broken down into small daily amounts (e.g., “$1 per day”) to make the overall price seem more affordable

31
Q

What is price quality relationship?

A

-Price-Quality Relationship: Refers to the perception that higher prices often signal higher quality to consumers. People tend to associate more expensive products with better performance, durability, or prestige.

  • Higher Price = Higher Quality: Consumers often believe that products priced higher are of better quality, even when the actual quality difference may not exist.

-Lower Price = Lower Quality: Conversely, lower-priced products are often assumed to be of lower quality, which can influence buying decisions, even if the product is of good value

32
Q

What is memory resident expected price as a part of internal reference price?

A

-Frequently Encountered Price: The typical price a consumer expects based on past experiences.

-Average Market Price: The standard price across competitors or the market.

-Fair Price: The price a consumer sees as reasonable for the product’s value.

-Expected Future Price: The anticipated price based on trends or market expectations.

33
Q

What happens when the price is greater than the reference price?

A

Expensive and price loss

34
Q

What happens when price is less than reference price?

A

Inexpensive price gain

35
Q

What are the types of external reference price?

A

-Advertised Price: The price shown in marketing materials, influencing consumer expectations.

-MSRP (Manufacturer’s Suggested Retail Price): The recommended price set by the manufacturer, often used as a reference point.

-Competitors’ Prices: The prices set by other companies for similar products, shaping consumer comparisons.

36
Q

What is 9 ending price in terms of left digit effect and nine ending pricing?

A

-Left Digit Effect: Consumers perceive prices as lower when the left-most digit is reduced, even if the overall difference is small.

-3.00 vs. 4.01: Consumers see $3.00 as much lower than $4.01, despite the small difference.

-2.99 vs. 4.00: Similarly, $2.99 seems much cheaper than $4.00 due to the left-most digit.

-Nine Ending Pricing: Prices ending in 9 (e.g., $3.59 or $2.99) appear significantly lower than rounded numbers.

-3.60 → 3.59: A subtle decrease makes the price appear more attractive.

-3.00 → 2.99: A price ending in .99 is perceived as a better deal.

37
Q

What is the effect of the face value effect using unit effect, foreign currency, euro illusion, and price unit?

A

-Face Value Effect: Consumers perceive higher numbers as more significant, even when the actual value is the same.

-Unit Effect: Larger time units (e.g., 1 year vs. 365 days) seem more substantial.

-Foreign Currency: The same amount can appear larger or smaller depending on the currency (e.g., 10,000 won = 200,000 dong vs. 7.5 Euro).

-Euro Illusion: Past currency values shape perception (e.g., 1 Euro = 2,000 lira feels cheaper than 1.5 Euro = 3,000 lira).

-Price Unit: Larger numbers in pricing (e.g., 10,000 won vs. 10) seem more significant.

38
Q

What is price perception vs price round?

A

-Price Perception: Consumers perceive precise prices (e.g., $3.75) as lower than round prices (e.g., $4.00), making them seem like a better deal.

-Price Trust: Consumers tend to trust precise prices more because they suggest careful pricing, while round prices can seem artificial or overly simplified.

39
Q

What is pennies a day in terms of temporal framing and donation to charity?

A

Short vs. Long Period: Costs presented over a shorter time (e.g., “85¢ a day”) seem smaller, while longer periods (e.g., “$300 per year”) can seem larger, even if the total is the same.

-Donation to Charity: Framing a donation as a small daily amount (e.g., “85¢ a day”) feels more manageable compared to a larger, lump-sum total ($300 per year), making it more appealing.

40
Q

What are factors of the price quality relationship with price and perceived quality and price with objective quality?

A

-Inference of Quality from Price: Higher prices can signal better quality in the consumer’s mind.

-Prestige Price: High prices are used to signal quality and status.

-Correlation (Price, Perceived Quality): There’s a moderate positive correlation (0.31) between price and perceived quality, meaning higher prices are often associated with higher perceived quality.

Price and Objective Quality: Objective quality is based on measurable criteria like quality tests.
-Objective Quality: Assessed through testing, not perception.

-Correlation (Price, Objective Quality): The correlation (0.16) is weaker, indicating that price does not strongly correlate with actual product quality based on tests.

41
Q

What are priced perceived value factors such as upper price threshold and lower price threshold?

A

Upper Price Threshold: The highest price a consumer is willing to pay, influenced by perceived value, income, and competition.
Reservation
-Price/Willingness to Pay (WTP): The maximum price a consumer is ready to pay for a product.

-Price Ceiling: The upper limit of what a consumer is willing to pay.

Lower Price Threshold: The minimum price a consumer is willing to accept, often influenced by psychological factors.
-Psychological Price Floor: The perceived lowest acceptable price based on consumer expectations.

42
Q

What happens at the end of each spectrum for perceived value in terms of price threshold?

A

Price is too high to purchase at the upper end of the spectrum while quality becomes suspicious is price is too low.

43
Q

What is cost plus pricing as a part of cost based pricing?

A

Pricing is based on costs and the markup which is a percentage of selling price that is added to cost.

Markup price is calculated as Unit cost/1-markup

44
Q

What are the advantages and disadvantages of cost plus pricing?

A

Advantages are that its simple to use

Disadvantages fail to consider demand and competition

45
Q

How to determine the markup price?

A

Markup price is stated as a percent of the selling price, not the cost.

46
Q

Easy way to find markup percentage?

A

We take the markup/overall cost

47
Q

What is value based pricing?

A

Uses buyers perceptions of value rather than the sellers costs to set price

48
Q

What are difficulties identifying value based pricing?

A

Difficulty measuring perceived value.

49
Q

What are the steps to value based pricing?

A
  1. Asses customer needs and value perceptions
  2. Set target price to match customer perceived value
  3. Determine costs that can be incurred
  4. design product to deliver desired value at target price
50
Q

What is competition based pricing?

A

Pricing to above, to meet, or below competition.

51
Q

What is market skimming pricing and when is it used?

A

When a product is set as a high price for a new product. Skimming is used when the product is distinctive, the quality and image matches higher price, and there are no or few competitors.

52
Q

What is market penetration pricing and when is it used?

A

Setting a low initial price for a new product. It is used when market price is too sensitive, to reach a mass market, or there are too many competitors in the market.

53
Q

Product mix pricing: What is product line pricing?

A

Setting price steps between products in a product line or setting different prices for the items in a single line.

54
Q

What is Optional product pricing?

A

Pricing of optional or accessory products along with a main product. Example is a product has a low base price but a customer can choose amenities that increase expenses.

55
Q

What is product bundle pricing?

A

When a company combines several products and offers them at a reduced price as a bundle.

56
Q

What are components of captive product pricing?

A

Manufacturers have loss leaders and make profit from other supplementary products like razors and razor blades.(Razors are cheap, blades are pricey)

57
Q

What is a retailer loss leader strategy?

A

Temporary price cuts to attract customers.

58
Q

Segmented pricing: What is customer segmented pricing, location pricing, and time pricing?

A

Segmented Pricing: A strategy where different prices are charged for the same product based on customer characteristics, location, or time.

-Customer Segmented Pricing: Different prices for different customer groups (e.g., student discounts).

-Location Pricing: Varying prices based on geographic location (e.g., higher prices in urban areas).

-Time Pricing: Adjusting prices based on the time of purchase (e.g., peak vs. off-peak pricing).

59
Q

Promotional pricing: What are price discounts vs volume discounts?

A

Promotional Pricing: A strategy where prices are temporarily reduced to attract customers.

-Price Discounts: Reductions in the price of a product for a limited time (e.g., 20% off during a sale).

-Volume Discounts: Price reductions based on the quantity purchased (e.g., buy one, get one 50% off or discounts for bulk purchases).

60
Q

Promotional pricing: What is every day low pricing vs high low pricing?

A

Promotional Pricing:

-Everyday Low Pricing (EDLP): A pricing strategy where products are consistently offered at low prices without frequent sales or promotions (e.g., Walmart).

-High-Low Pricing: A strategy where products are initially sold at high prices but are frequently discounted during promotions or sales events (e.g., department stores)

Marketing Management (8 decks)

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