Pricing Decisions Flashcards
1
Q
Pricing Constraints (2)
A
- Firm’s cost determines floor
2. Price sensitivity determines ceiling
2
Q
Pricing Situational Factors (4)
A
- business strategy compatibility
- extent product differs from competitor products in quality
- competitor’s cost and price
- availability and prices of substitutes
3
Q
Pricing Process (7)
A
- Set strategic objective
- Estimate demand, price elasticity, perceived value
- Determine costs and their relationship to volume
- Examine competitor cost and price
- Select a method for calculating price
- Set price level
- Adapt price structure (demand, geographic, segments, channels)
4
Q
Strategic Pricing Objectives
A
- Maximise sales growth and penetration
- Maintain quality f service differentiation (Apple)
- Maximise current profit (Skimming/Harvesting)
- Survival (buy time)
- Social objectives
5
Q
Skimming
A
set price very high targeted only at price-insensitive customers
6
Q
Harvesting
A
drop production and marketing cost but set price relatively high to maximise profit before demand disapears
7
Q
price elasticity of demand
A
% of quantity demanded / % change in price
8
Q
Factors Affecting Price Sensitivity (3)
A
- Buyer perception of product (unique value effect and price quality effect)
- Buyer awareness and attitude to alternatives (substitute awareness. difficult-comparison, sunk investment)
- Buyer ability to pay (Total Expenditure Effect, End Benefit, Shared-Cost, Inventory Effect)
9
Q
Estimating Costs (4)
A
- Fixed costs (overhead)
- Variable costs - vary with units produced
- Total cost (fixed + variable)
- Marketing Mixed costs - (intangible like distribution channel markups)
10
Q
Competition-Oriented Methods for Pricing Decisions
A
Oligopolistic, going-rate
11
Q
Customer-Value Based Pricing Methods
A
Capitalises on perceived value, proven to earn 24% more profit
12
Q
Value-in-use
A
- Select reference product
- Assess incremental benefits of using own product
- Discount a bit on lack of customer knowledge, perceived risk
- Inducement
13
Q
Other Pricing Methods (4)
A
- Customary price (chocolate bars)
- Price-lining (men’s shirts A, B, or C)
- Psychological pricing (watches)
- Promotional pricing
14
Q
Geographical Adjustment (4)
A
- Free On Board (FOB) Origin Pricing (customer pays freight)
- Freight Absorption Pricing
- Uniform delivered pricing (standard freight charge regardless of location)
- Zone pricing
15
Q
Discounts (6)
A
- Trade Discounts
- Quantity Discounts
- Cash Discounts
- Allowances (trade in)
- Price-off promotions
- Coupons/Rebates/Refunds
