Pricing Products and services (lecture #15) Flashcards
what is a price?
barter
price is an indicator of _______
value
-ie value pricing
What do you want price to do?
-to meet the needs and expectations of consumers
what are some different pricing objectives (6)
‣Profit ‣Sales ‣Market Share ‣Unit Volume ‣Survival ‣Social Responsibility
what are the four types of competitive markets?
- Pure Monopoly
- Oligopoly
- Pure Competition
- Monopolistic Competition
describe monopoly
- single supplier of a product
- exist because of barriers to entry into a market that competition
- monopolists have full control of price
- usually not an ideal situation
- government usually regulates it
describe survival as a pricing objective
-during an economic crisis, might lower price to sell more goods allowing a company to stay afloat
describe social responsibility as a pricing objective
might have social responsibility to price goods lower so those with lower income can afford
why do monopolies arise
- Resources (a key resource required for production is owned by a single form)
- government regulation (government gives a single firm the exclusive rights to produce some good or service; gov-created monoplies)
describe oligopoly
- firms sell identical or differentiated products
- entry and exit barriers
- non-price competition is common
- imperfect competition
- few major sellers
- interdependence
- rivals aware of what others are doing
- collusion
describe pure competition
- many sellers (no single seller has an impact on price)
- products are homogenous
- individual firms must accept market price (price takers)
describe monopolistic competition
- large number of firms
- each firm produces a differentiated product
- firms compete on product quality, price, and marketing
What are the four pricing approaches?
- cost-based pricing
- value-based pricing
- competition-based pricing
- demand-based pricing
describe cost-based pricing
under cost based pricing the marketer primarily looks at production costs as the key factor in determining the initial price
what is the advantage of cost-based pricing
easy to implement as long as costs are known
what is the major disadvantage of cost-based pricing
- doesn’t take into consideration the target market’s demand for the product
- this could present major problems if the product is operating in a highly competitive market where competitors frequently alter their prices
describe value-based pricing (four step cycle)
- estimation of customer perceived value
- based on customer feedback, price range of product is decided
- checks how much customer values the product
- decide price for differentiated feature of product
describe competition-based pricing
‣Setting prices based on competitors’ strategies and market offerings
‣When determining price, costs and revenues are secondary to competitors’ pricing
‣Examples: penetration pricing, going-rate pricing
what are some other competition-oriented pricing approaches
‣Customary Pricing
‣Above- At- or Below- Market Pricing
‣Loss-Leader Pricing
what are some approaches of demand-based pricing? (8)
‣Skimming Pricing ‣Penetration Pricing ‣Prestige Pricing ‣Price Lining ‣Odd-Even Pricing ‣Target Pricing ‣Bundle Pricing ‣Yield Management Pricing
def, skimming strategy
- used for a distinctively new product which is to be purchased by a market that is not sensitive to the initial high price
- -an industrial marketer thereafter reduces the price to reach other market segments that are more price sensitive
def. penetration strategy
- effective when:
1. price elasticity is high
2. strong threat exists from potential competitors
3. opportunity cost exists to reduce the unit cost of production and distribution with increase in volumes
**is low-pricing
def. prestige pricing
- sets higher than average prices to suggest status and high quality to the consumer
- many customers assume that higher prices mean better quality
- *have to remain consistent, can’t do anything that suggest/dilutes the prestige
- ex. luxury cars and watches
def. price lining
- marketers establish a price floor and price ceiling and set prices in between
- allows for easy comparison
- *important because consumers like to compare, like to see where prices come from/what they relate to
- *this is important because you want to give customers things to compare so they don’t search for comparison elsewhere
def. odd-even pricing
- technique which involves setting prices which all end in either odd or even numbers
- *based on the principle that odd numbers convey bargains and even numbers convey quality
def. target pricing
- based on target costing
- target costing is a method of determining the cost of product based on target price that customers are willing to pay
- a target price is determined by the marketing department before designing and introducing a new product
- target cost= anticipated selling price - desired profit
- if the product cost is above the target cost, then the product designer focuses on modification of design of the product so that it reduces the cost of product to target cost
def. yield management
‣Attributed to airline industry, but used in cruise industry car rental industry, and other service industries
‣Essentially “revenue management”
‣Selling the right product at the right price at the right time
‣Considerations: price, cancellation policy, refund policy
**want to maximize revenue and incite customers to buy early
def. bundle pricing
offer a price for the purchase of several related units
What five things violate the competition act?
‣Price Fixing ‣Price Discrimination ‣Deceptive Pricing ‣Predatory Pricing ‣Resale Price Maintenance
you should be in business not to ____________, but to ___________
not to kill competition, but to better satisfy customer needs
def. price fixing
companies collude to keep prices artificially high
def. price discrimination
supplier offers different price to very similar retailers (illegal)
**legal loophole: big retailer gets volume rebate instead or “differentiates”, gets distributor pricing instead
def. deceptive pricing
consumer is deceived to believe that advertised price= actual price
def. predatory pricing
- loss leader pricing
- prices product below its cost, then when competition is eliminated, jack up price
def. resale price maintenance
- higher level participant in distribution tries to influence a member of a lower channel
- –producer trying to get retailer to charge at a specific price
