Pricing Flashcards
Define Price
The amount of money charged for a product or service, or the sum of all values exchanged for the benefit of having a product
Name the 3 Factors influencing price
- Market and Demand Conditions
- Competitors pricing strategies
- Firms Marketing strategy, objectives and mix
Explain how you determine a price floor and price ceiling.
Floor= Any price below cost of production (Unless below cost strategy used) Ceiling= Any price about the perceived value of the product
Name the 3 main Price-Settings Strategies
- Value-based pricing
- Cost-based pricing
- Competition-based pricing
Define Value-Based Pricing and its related concept, the 4 stages of value pricing, how value is measured and critique the strategy.
- Where priced is based upon buyers perceptions of value rather than costs (Customer driven). Related to marketing concept, as products are designed to satisfy customer needs and wants.
- Asses customer value perception
- Set price at perceived value
- Determine costs that can be incurred
- Develop a product that fulfils value at desired cost.
Value is measured using Conjoint Analysis.
+Allows price to be altered based on perceived value.
+Meets consumer needs and wants
-Sellers are uncertain on value; making it risky.
-Price may not generate high profits or markup.
Define Cost-based Pricing and its related steps, the 4 stages of cost based pricing, explain an example of cost based pricing and critique this strategy.
- Where price is set based upon cost of production plus a fair rate of return for risk (Product driven). Related to product concept; build a product then find a market.
- Design high quality product
- Determine production costs
- Set price based on costs
- Convince consumers of products value
COST-PLUS PRICING
- Where a firm collect both it’s fixed and variable costs of production (Bill of materials) then adds a specified markup on the individual units cost of the product.
+Sellers understands costs clearly; much simpler pricing strategy
+ Buyers perceive this as a fairer method
- If markup is low, it leaves little scope to change price
- Ignores consumers demand and competitors pricing strategies
Define Competition-based pricing, and name and explain the 4 key types.
- Where price is set based on competitors price and strategies.
GOING RATE
- Price set very similar to competitors price, done with undifferentiated products. (e.g utilities)
ME-TOO
- Copying the entire marketing mix of a competitor.
PRICE MATCHING
- Offering consumers ability to get competitors price for your identical products
PREMIUM PRICING
- Setting price just above that of your competitors similar products, intended to signal quality.
Define Dynamic Pricing
Combines 3 key pricing strategies, whereby prices are constantly adjusted to meet consumer characteristics and needs.
Explain why New Product Pricing strategies differ? Name and explain the 2 key types.
Differ due to increased risk of purchase, and unclear value associated with product.
MARKET SKIMMING
Price is set as high as possible in order to maximise revenue, then once market segment becomes saturated price is ‘skimmed’ to access new consumer segments.
MARKET PENETRATION
Price is set at a low level deliberately, in order to maximise market share and establish a firms position in the market.
Name the 2 key times when Market Penetration is key; Including their related concepts.
NETWORK EFFECT MARKETS
- This is when a product/ service gains its value by having a huge network of consumers engaging on the platform. Linked to Indirect Network effects, whereby large number of consumers on the network encouraged creation of complimentary products (App Stores), and winner takes all markets where majority of consumers flood a single market, and all other die (e.g Iphones vs Microsoft phones)
2-SIDED MARKETS/ FREMIUM PRICING STRATEGIES.
- Whereby access is given for free/cheap, which allows the network to grow in size, then in order to access full version you have to pay a premium. Therefore, consumer are what have created the networks value, and are having to pay for it.
What is it called when firms sell products for cheaper than costs? Give the 2 related concepts and explain.
Known as below cost pricing, or dumping.
+CAPTIVE PRODUCT PRICING
- Here, firm takes advantage of network effects by ‘dumping’ a product into a market, thus creating a large consumer base, from which they exploit opportunities to sell complimentary products/ add ons that have high profit margins. (e.g printers - cartridges)
- PREDATORY PRICING
- Where a firm selectively prices a product cheaper than its competitors, at a loss to itself, in order to drive a competitor out of business, thus allowing them to artificially inflate a products price to make greater profits
- Outlawed by UK anti-trust laws
Define Physcological Pricing. Name and explain the 5 mains types.
-Prices intended to have a special appeal to consumers.
ODD-EVEN PRICING
- Form of pricing that suggests consumers are more sensitive to certain ending digits of prices.
ANCHOR PRICING
- Prices that buyers carry with them and refer back to; when higher than current price it encourages sales.
RRP.
- Price of a product before any deductions or discounts; makes product discounts seem bigger than they are.
SCARCITY EFFECT
- The way consumers place higher values on products that are in scarce supply, and lower values on products that are in abundance. Forces end of information search stage of consumer behaviour decision process (e.g Ebay Countdowns)
PROMOTIONAL PRICING
- Temporarily setting the price of a product below list price, in order to generate a short-term sales boost.
