Pricing (Ch. 9) Flashcards
What is a price?
- The amount of money charged for a product / service
The sum of values that customers exchange for having or using the product or service - Profit maker
- major factor affecting buyer choice
Considerations when Setting price
3 Cs: Customer, Company, Competitor
- Customer perceptions of value identify the price ceiling
- Company product costs determine price floor
- Competitor pricing strategies, market environment and external forces
Cost based pricing
Based on costs of producing, distributing and selling
Standard Markup Pricing
Adding a standard markup to the cost ($30 cost + 40% markup)
- Ignores customer demand and competitors’ prices
- Simple & fair
Break-even pricing
Setting prices to break even on producing and marketing a product
Competition Based Pricing
setting prices based on competitors strategies
- little attention paid to company’s costs
Value (Customer) Based Pricing
uses buyers’ perceptions of value
- perceived value reflects more than just the functional benefits of the product
Good Value Pricing
the price relative to the value you’re receiving
Internal vs. External Factors affecting Pricing Decisions
Internal: marketing strategy, costs, organizational considerations
External: nature of market/demand, competition, state of economy
4 Types of Markets
Pure Competition: Many buyers and sellers, little effect on the market price
Monopolistic Competition: Many buyers and sellers who trade over a range of prices
Oligopolistic Competition: Few sellers and sensitive to each other’s pricing & marketing strategies
Pure monopoly: single seller in market
Examples of Each Type of Market
Pure Competition
Monopolistic Competition
Oligopolistic Competition
Pure Monopoly
Pure: potatoes, wheat, carrots
Monopolistic: clothes, cars, computers
Oligopolistic: Airlines, gas station
Monopoly: Canada Post
What are some elastic products
If a product is a luxury, has many substitutes, makes up a large portion of income it is elastic
- Marketing cannot affect elasticity of demand
Skimming pricing
- High price to reap maximum profit from early adopter segments
- Can encourage competition
- Product must have a unique aspect to it or people won’t pay high prices
Penetration pricing
- Low price to gain max market share
- Can discourage competition
- Used when the product is easily copied
Risks of Skimming Pricing
- Price is too high for early adopters, risk takers
- If product is not unique enough, skimming pricing won’t work
Risks of Penetration Pricing
- Future price hikes can harm customer relationships, and they’ll discontinue buying
Product line pricing
increasing product price when new models are introduced
Option product pricing
Pricing optional or accessory products sold with the main product
- Add ons / upgrades
Captive pricing
Pricing products that must be used with the main product (replacement cartridges for inkjet printers)
Product bundling pricing
Selling a combination of products together in a group at a reduced price
(Telus Optik Packages, Shampoo + Conditioner)
Are price reductions always a good thing?
No, sometimes lowering a price can turn off consumers because a product may have been more exclusive with the higher price
Consumers get angry when prices increase, what can companies do to avoid price increases?
- Companies can change the material, weight or shape of the package to hide it from customers
- Shrinkflation is another term for this
What is the effect of prices on consumers?
- Price signals quality information
- Prices do things psychologically to people, and influence purchase decision
Segmented Price Adjustment
Offering a different price to different customer segments (child vs. adult), even though there is no difference in cost
