Pricing (Ch. 9)

Question 1

What is a price?

Answer 1

• 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

Question 2

Considerations when Setting price

Answer 2

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

Question 3

Cost based pricing

Answer 3

Based on costs of producing, distributing and selling

Question 4

Standard Markup Pricing

Answer 4

Adding a standard markup to the cost ($30 cost + 40% markup)
- Ignores customer demand and competitors’ prices
- Simple & fair

Question 5

Break-even pricing

Answer 5

Setting prices to break even on producing and marketing a product

Question 6

Competition Based Pricing

Answer 6

setting prices based on competitors strategies
- little attention paid to company’s costs

Question 7

Value (Customer) Based Pricing

Answer 7

uses buyers’ perceptions of value
- perceived value reflects more than just the functional benefits of the product

Question 8

Good Value Pricing

Answer 8

the price relative to the value you’re receiving

Question 9

Internal vs. External Factors affecting Pricing Decisions

Answer 9

Internal: marketing strategy, costs, organizational considerations
External: nature of market/demand, competition, state of economy

Question 10

4 Types of Markets

Answer 10

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

Question 11

Examples of Each Type of Market
Pure Competition
Monopolistic Competition
Oligopolistic Competition
Pure Monopoly

Answer 11

Pure: potatoes, wheat, carrots
Monopolistic: clothes, cars, computers
Oligopolistic: Airlines, gas station
Monopoly: Canada Post

Question 12

What are some elastic products

Answer 12

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

Question 13

Skimming pricing

Answer 13

• 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

Question 14

Penetration pricing

Answer 14

• Low price to gain max market share
• Can discourage competition
• Used when the product is easily copied

Question 15

Risks of Skimming Pricing

Answer 15

• Price is too high for early adopters, risk takers
• If product is not unique enough, skimming pricing won’t work

Question 16

Risks of Penetration Pricing

Answer 16

• Future price hikes can harm customer relationships, and they’ll discontinue buying

Question 17

Product line pricing

Answer 17

increasing product price when new models are introduced

Question 18

Option product pricing

Answer 18

Pricing optional or accessory products sold with the main product
- Add ons / upgrades

Question 19

Captive pricing

Answer 19

Pricing products that must be used with the main product (replacement cartridges for inkjet printers)

Question 20

Product bundling pricing

Answer 20

Selling a combination of products together in a group at a reduced price
(Telus Optik Packages, Shampoo + Conditioner)

Question 21

Are price reductions always a good thing?

Answer 21

No, sometimes lowering a price can turn off consumers because a product may have been more exclusive with the higher price

Question 22

Consumers get angry when prices increase, what can companies do to avoid price increases?

Answer 22

• Companies can change the material, weight or shape of the package to hide it from customers
• Shrinkflation is another term for this

Question 23

What is the effect of prices on consumers?

Answer 23

• Price signals quality information
• Prices do things psychologically to people, and influence purchase decision

Question 24

Segmented Price Adjustment

Answer 24

Offering a different price to different customer segments (child vs. adult), even though there is no difference in cost

Question 25

Psyhological Price Adjustment

Answer 25

Using prices to signal quality, when consumers cannot easily judge quality
- $10 perfume vs $100 perfume

Question 26

Promotional Price Adjustment

Answer 26

Offering discounts to reward customers for early payment, bulk purchase or off season purchases

Question 27

Geographical Price Adjustment

Answer 27

Charging different prices based on customer location (within/outside the country, shipping costs)