price - term 2

Question 1

what is price

Answer 1

refers to the amount of money a customer is prepared to offer in exchange for a product

pricing methods and strategies must be aligned with marketing objectives, marketing mix and economic conditions

high price = loss of sales

low price = cheap

Question 2

what are the three methods of calculating price?

Answer 2

• cost based
• market-based
• competition based

Question 3

cost base - method of calculating price

Answer 3

a pricing method derived from calculating the total cost of producing or purchasing a product and then adding a mark up for profit

Question 4

market-based - method of calculating price

Answer 4

a method of setting prices according to the interaction between the levels of supply and demand - whatever the market is prepared to pay

Question 5

competition-based - method of calculating price

Answer 5

choosing a price that is either below, equal to or above that of competitors

Question 6

what are pricing strategies?

Answer 6

• once the basic price has been set using the preferred pricing methods price is then aligned with its pricing strategy

Examples: skimming, penetration, loss leaders, and price points

Question 7

what are pricing strategies dependent on

Answer 7

• marketing objectives
• the life cycle of the product
• the marketing for the product
• the degree of product differentiation
• the level of economic activity

Question 8

what is skimming

Answer 8

• the price of the product is set at the higher end of the market generally at the start of its lifecycle
• consumers are more willing to pay a high price for products with novelty features

Example: Nike with a new shoe - they have high demand they might lower price when competitors release new shoe to ensure sales and increase market share

Question 9

what is penetration

Answer 9

A business charges the lowest price possible for a product - price is set deliberately below the business’s competitors

immediately creates a point of difference between the business and its competitors - creates visibility

aims to quickly achieve a large market share for a product - the objective is to sell a large number of products during the early stages of the lifestyle and thus discourage competitors from entering the market or taking market share from existing businesses

Question 10

advantages of penetration

Answer 10

wide appeal to price-conscious consumers

Question 11

disadvantages of penetration

Answer 11

it is more difficult to raise prices significant than it is to lower them

Question 12

what are loss leaders?

Answer 12

a popular product is sold at a financial loss or below-cost price

To attract increased numbers of consumers through the store

businesses can recover the loss on the low-price item from the sale of other items sold

Example: Aussie supermarkets selling popular groceries below cost in the short term to attract increased consumers - mid-week specials

Question 13

what are price points

Answer 13

• also known as price lining
• the most balanced cost to maintain the highest demand
• is selling products only at certain predetermined prices
• used mainly by retailers (boutiques)
• Business chooses a limited number of key prices or price points for selected product lines regardless of cost at wholesale

Question 14

what is price and quality interaction

Answer 14

you get what you pay for

Products of superior quality are sold at higher prices. This is usually due to the higher manufacturing cost involved in producing them

Can also be referred to as prestige pricing - where a high price is charged to give the product an aura of quality and status