Pricing Strategy I Flashcards
what is price
Price is that which is given up in exchange to acquire a good or service
In the broadest sense, price allocates resources in a free-market economy.
what is price to the seller
Price is revenue and profit source
what is price to the consumer
Price is the cost of something
what is the importance of setting the right price
Price is a Reflection of a Brand’s Image & Positioning. Setting the wrong price may damage the brand’s image.
Price is a Revenue Source and Profit Generator for a company. Brands may Lose Profits if prices are wrongly set too low; or Lose Customers (Revenue) if prices are wrongly set too high vis-à-vis competition.
what is revenue
Revenue = Unit Price X number of units sold
◆ Revenue pays for every activity.
◆ What’s left over is Profit.
Marketers must select a price
that is not too high or not too low, a price that equals the _____
perceived value to target consumers
what are the major consideration in setting price
product costs
competitor’s prices & other internal & external factors
consumer perceptions of value
what is price floor
no profits below this price
what is price ceiling
no demand above this price
what is internal factors
marketing objectives
marketing mix strategy
costs
organizational consideration
what is external factors
nature of the market & demand
competition
other environmental factors (economy, resellers, gov social concerns)
what are the 4 marketing objectives
survival
profit maximization
market share leadership
product quality leadership
what is survival
Low Prices Hoping to Increase Demand.
❖ If the Marketing Objective is to survive, then charge Low prices
e.g. $, This Fashion
❖ NOT a very good strategy
what is profit maximization
Choose the Price that Produces the Maximum Current Profit, Etc.
❖ Work out prices that gives maximum returns/profits to the company.
❖ The highest Return On Investments (ROI).
what is market share leadership
Low as Possible Prices to
Become the Market Share Leader.
❖ If Marketing Objective is to dominate the market, then set a price lower than competitors to draw competitors’ customers.
what is product quality leadership
High Prices to Cover Higher Performance Quality and R&D.
❖ Set high prices to cover Higher Performance Quality and R&D.
what is marketing mix strategy (internal factors)
◆Price decisions must be coordinated with product design, distribution, and promotion decisions (the other 3 Ps) to form a consistent and effective marketing program.
➢Image/positioning of PRODUCT
➢Where and how the product is sold - PLACE
➢How the product is being communicated to the market
– PROMOTION
what are the types of costs
fixed costs (overhead costs which dont vary w/ sales or production levels)
variable costs (costs vary directly w/ level of production raw materials)
total costs (sum of fixed + variable costs for any level of production)
what are the organizational considerations (internal factors)
Cannibalisation – Take into consideration the issue of
whether the organisation wants to continue a product line or product item, when it introduces a new product. Cannibalisation of sales may arise.
what is market and demand (external factors)
- Customer responsiveness to price changes
➢ Demand is considered elastic, if $ goes up/down and demand changes drastically
➢ Demand is inelastic, If $ goes up/down and demand affected
minimally
what is competition (external factors)
Competitors’ Strategies and Prices
▪ Comparison of offering in terms of customer value
▪ Set price competitively
what are the other external factors
▪ Economic conditions
▪ Resellers’ response to price
▪ Government
▪ Social concerns
▪ Use of technology
what are the 3 General Approaches to Pricing
- Cost-Based (cost-plus) Pricing
- Value-Based Pricing
- Competition-Based Pricing
cost based pricing aka
cost plus pricing
