Pricing L7 Flashcards
Why study price?
- One of the 4/7Ps that generates revenue, all others incur cost
- Pricing decisions are about perceived value
- Pricing decisions help with positioning in offering a way that the customer will find appropriate
What might price mean?
- The amount of money required or given in exchange
- An unwelcome experience/action or penalty
- The action of deciding the amount required in payment
- The action of establishing the amount required to purchase
What issues affect price?
- Organisational and marketing objectives
- Pricing objectives
- Costs
- Other marketing mix variables
- Channel member expectations
- Buyers perceptions
- Competition
- Legal and regulatory issues
What is the cost based pricing approach?
Look at product and the costs it incurs, find a price, add value
What is the value based pricing approach?
Look at how the customer values the product, find a price, ensure it covers costs
What is the competitor based pricing approach?
Look at what competitors are charging, find a price, ensure it covers costs and that customers place enough value on the product
What is the systematic approach to product pricing?
Pricing objectives –> Assess target price evaluation and purchase availability –> Determine demand –> Cost and profit relationship –> Evaluate competitors’ price –> Select pricing policy –> Select price method –> Determine specific price
What are examples of pricing objectives?
- Make a profit
- Break even
- Make a loss to screw up competition
What are the pricing trade offs of having a low price?
If the price is too low, customer will be happy and sales will rise but there might be no money for promotion which could reduce sales and limit profitability as well as create a cheap product perception
What are the pricing trade offs of having a high price?
If the price is high the customer might be unhappy and sales fall but the retailer will be happy and give more shelf space causing sales to rise. There will be better product perception but price may be higher than competition. Although a higher price gives opportunity for R&D
What is the cost profit relationship?
As price increases, break even point happens at a lower quantity
What is price skimming?
Charging a high initial price and then lowering it over time
What are the advantages to price skimming?
- Recover R&D costs more quickly
- Quick cash flow
- High price may signify high quality
What are the disadvantages to price skimming?
- Market share growth is low
- Profits may attract competition
What is penetration pricing?
Starting at a low price to entice customers and eventually increasing it
