Pricing: Managing Price

Question 1

Price is the only marketing tactic that captures revenue for the company; all other tactics are costs

Answer 1

Pricing directly influences the value that the offering creates for target customers, the company, and its collaborators

Question 2

What is the best price?

Answer 2

consider 5Cs and 7Ts

Customers 
collaborators
company 
product
service
brand
incentives
communication
distribution

Setting the price is really a decision about value, not just price.

Question 3

Complementary Pricing:

Answer 3

a company charges a relatively low introductory price for the first part of the offering and higher prices for the other parts. Classic examples include razors and blades, printers and cartridges, and cell phones and cell phone service.

Question 4

Cost-Plus Pricing

Answer 4

A pricing method in which the final price is determined by adding a fixed markup to the cost of the product.
easy

Question 5

Cross-Price Elasticity:

Answer 5

The percentage change in quantity sold of a given offering caused by a percentage change in the price of another offering.

Question 6

Experience Curve Pricing

Answer 6

pricing based on anticipated future lower cost structure (by scale economy and experience curve effect)

Question 7

High Low Pricing

Answer 7

Pricing strategy in which a retailer’s prices fluctuate over time, typically a result of heavy reliance on sales promotions.

vs EDLP every day low price

Question 8

horizontal price fixing

Answer 8

competitors explicitly or implicitly collaborate to set prices. Price fixing is illegal in the United States.

Question 9

loss leader

Answer 9

pricing strategy to set low price to increase sales of other products

Question 10

predatory pricing

Answer 10

low price to drive out competitors

Question 11

prestige pricing

Answer 11

price set at high level to create exclusive image of offering

Question 12

Second market discounting

Answer 12

Pricing strategy in which a company charges lower prices in more competitive markets, such as when exporting to developing countries.

Question 13

vertical price fixing

Answer 13

channel partners (a manufacturer and a retailer) explicitly or implicitly collaborate to set prices. Price fixing is illegal in the United States.

Question 14

yield management pricing

Answer 14

pricing strategy where price is set to max revenue within a given time frame (airlines and hotels)

Question 15

3 popular pricing approaches

Answer 15

1 cost based pricing
2 competitive pricing (competitive parity pricing)
3 demand pricing (customers willingness to pay)

Question 16

customer based pricing strategies (2)

Answer 16

1 skim pricing (setting a high price to “skim the cream” off the top of the market, represented by customers who seek the benefits delivered by the offering and are willing to pay a relatively high price for it.)

2 penetration pricing (low prices to gain higher sales volume)

Question 17

Price Sensitivity

Answer 17

Price elasticity represents the percentage change in quantity sold (∆Q%) relative to the percentage change in price (∆P%) for a given product or service.

elasticity = (∆Q%)/(∆P%)

Question 18

Psychological Pricing effects (5)

Answer 18

1 reference price effects (compare to a previous price)
2 price quantity effects (change volume instead of price)
3 price tier effects ($1.99 than $2)
4 price ending effects (ending in 9 means discount and 0 means quality)
5 product line effects (help other offerings with low/high price)

Question 19

Factors to avoid price wars

Answer 19

1 offering differentiation
2 cost structure (if you can get low price with economies of scale, you might go into price war)

3 Market growth (stagnant markets lead to price wars)
4 Customer loyalty (more price wars with customers are price sensitive and their switching costs are low.
)

Question 20

issues with price wars

Answer 20

1 competitive reaction (if competitors match)
2 Increased Price sensitivity (customers’ future price expectations, such that the lowered prices become the reference points)
3 Brand devaluation (price tends to erode brand power)