Pricing Flashcards
Pricing decisions are made based on
internal factors and external factors.
Internal factors include:
- marketing objectives (choice of strategy)
- marketing mix strategy
- costs (fixed, variable and total)
- organizational considerations.
External factors include:
- market and demand
- competitor’s cost
- price and offers
- other (such as economy, government).
Price considerations must be made. These are:
product costs
competition
external factors
consumer perception and value.
There are three types of pricing strategies:
- cost based
- Value based
- Competition based
Cost-based pricing strategy is:
setting prices based on costs and then adding a fair rate of return
value based pricing strategy is
is when prices are chosen based on buyers’ perceptions and not what production costs are.
Competition-based pricing strategy is
when one prices are set based on competitors’ process, this can be by going-rate (market price) or a sealed bid offer(closed envelopes bidding).
pricing strategies fro new products
- market skimming
- market-penetartion
market skimming is
when there is a high price for new products to skim layers of the market. It is used to build for product with high quality and image, and when entry barriers to competitors exist.
expensive in beginning for few people that want new and innovative things. later cheaper to reach bigger audience when not as new anymore.
Market-penetration happens when
a low initial price is set in order to gain market share quickly . It is used for high price sensitive products and falling production costs as volume increases.(economies of scale)
After introduction to the market, price changes are also possible. Can be by:
Initiating
responding
Initiating by:
-Price cut- when there is excess capacity or fallen market share
-Price increases - when there is overdemand and inflation.
Responding by
holding/ raising/ reducing
prices after competitors do so firstly.
