Pricing: Managing Price Flashcards
Price is the only marketing tactic that captures revenue for the company; all other tactics are costs
Pricing directly influences the value that the offering creates for target customers, the company, and its collaborators
What is the best price?
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.
Complementary Pricing:
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.
Cost-Plus Pricing
A pricing method in which the final price is determined by adding a fixed markup to the cost of the product.
easy
Cross-Price Elasticity:
The percentage change in quantity sold of a given offering caused by a percentage change in the price of another offering.
Experience Curve Pricing
pricing based on anticipated future lower cost structure (by scale economy and experience curve effect)
High Low Pricing
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
horizontal price fixing
competitors explicitly or implicitly collaborate to set prices. Price fixing is illegal in the United States.
loss leader
pricing strategy to set low price to increase sales of other products
predatory pricing
low price to drive out competitors
prestige pricing
price set at high level to create exclusive image of offering
Second market discounting
Pricing strategy in which a company charges lower prices in more competitive markets, such as when exporting to developing countries.
vertical price fixing
channel partners (a manufacturer and a retailer) explicitly or implicitly collaborate to set prices. Price fixing is illegal in the United States.
yield management pricing
pricing strategy where price is set to max revenue within a given time frame (airlines and hotels)
3 popular pricing approaches
1 cost based pricing
2 competitive pricing (competitive parity pricing)
3 demand pricing (customers willingness to pay)
customer based pricing strategies (2)
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)
Price Sensitivity
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%)
Psychological Pricing effects (5)
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)
Factors to avoid price wars
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.
)
issues with price wars
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)
