Pricing Flashcards
What is everyday low pricing? (EDLP) Benefits?
stable prices, not stressing about sales etc
Reduces price wars, advertising
Can focus on customer service
What is high/low pricing? Benefits?
sales for budget conscious, normal price for those who dont care
- Appeals to multiple markets
- Creates excitement
- Responds to trade deals (pos special price at end of season)
- Walmart vs. The Bay?
What are the degrees of price discrimination? Example for each?
- First Degree – Each Customer Different (ex: ebay, yard sales/flea markets, cars)
- Second Degree – Volume Based Schedule (ex: supermarkets, costco – quantity discounts)
- Third Degree – Each Segment Different (ex: senior and student pricing, international vs domestic student tuition, airlines)
What laws dictate pricing and competition (US and Canada)? In what situtation can you charge diff prices?
- competition act of canada (enforced by competition bureau)
- US: Robinson patman act
diff prices: charge more to a wholesale B2B iff it costs more to get it to them // charge less if can show economies of scale
What is a price lining policy?
- for each category pick 3-5 Price Points or Zones (ex: low med high) then fit each SKU into one of the zones
- Internally Consistent
- Simplifies Administration and Marketing
- efficient because only need to change 3 things to change prices!
What are demand factors? Cost factors?
Demand
- Perceived need
- Postponability
- Substitutes
Cost
- Cost plus markup
- simple with much merchandise
What is category elsasticity? brand elas? how caluclate elasticity?
category = assume all prices in category change by the same amount
brand = one firm changes price but rest stay constant
calculation: [(change in Q)/Q1] x [P1/(change in P)]
What was average category price elasticity in 367 markets? Where would consider inelastic vs elastic
1.76!
inelastic would be less than 1.25
elastic would be more than 2.25
midrange/avg = 1.25-2.25
What is prisoners dilemma?
- Each party pursuing narrow self-interest causes both parties to earn less
- Dominant Strategy (no matter what competitor does, should always choose $1 because profit $30 or $45)
- Nash Equilibrium
- Coordination can increase profits for all
What are the 4 mechanisms of price coordination?
- Cartels (illegal within countries but not internationally)
- Price Fixing Illegal (agree to sell at certain price)
- Predatory Pricing Illegal (price below own costs to run competitor out of business)
- Discriminatory Pricing Illegal (cant change price for different businesses you supply)
What are laws/acts in Canada and US that make it illegal to agree on prices?
Canada: competition act
US:
- Sherman act
- Clayton act
- Robinson Pattman act
What are the mechanisms of price coordination? (2 categories, 1-3 each)
Price leadership
- dominant firm (one controls >50% dept)
- collusive (no firm dominates (4-8 of em) but one seems to become leader)
- barometric (small firm is barometer of cost situation so others price off them)
Focal point pricing
- rule of thumb pricing (just what everyone does? idk didnt write any goddamn notes for this one)
— example was deciding lunch without discussing - end up at least kinda getting close like always choose noon
What are the factors limiting price coordination?
- Many firms and unequal distribution (makes harder to coordinate prices)
- Product heterogeneity (cant copmare prices for custom products)
- Differences in cost structure
- Inventories expensive and no backlogs
- Lumpy orders, lags, secrecy
- Dissimilar backgrounds (managers of company from different countries)
- Government regulation
What is skimming pricing? What is penetration pricing?
Skimming: start at high price with some cust willing to pay high, then slowly lower so end up charging everyone their willingness to pay
Penetration: start with low price to get market share quick
