Revel flashcards: Chapter 7.2 External influences on pricing decisions
1
Q
5 external influences on the pricing decisions:
A
- Customers and consumers
- Legal and regulatory
- Competitors
- Channels of distribution
- Demand and price elasticity
2
Q
Customers and consumers …
A
- Price is a big influence for more than half of buyers.
- Can increase the pricing discretion by either reducing costs and lowering selling price or raising sellin gprice but offer more to consumers.
- Firms with strong brand loyalty can sustain a premium pricing strategy.
3
Q
Demand and price elasticity …
A
- Definition of demand is flexible as it differs from marketts, market segments and individual firms.
Demand determinants:
- Changing consumer tastes and needs.
- Economic ability to pay is still there but the willingness to buy is not.
- Changes in consumer incomes
- Availability of substitute products.
4
Q
Boomerang demand curve (price elasticity) and parallel demand curve:
A
- Occurs with products which have a deep psychological relationship with consumers and a high status.
- An increase in price can lead to an increase of demand, but only up to a certain point (too exclusive), price skimming then occurs.
- Marketers implement strategies to increase demand while retaining price.
5
Q
Price elasticity of demand equation:
A
% change in quantity demanded / % change in price
Steep demand curve shows a great deal of price sensitivity and vice versa
6
Q
Competitors:
A
- Influence of competition on price will depend on the nature of the product and the number and size of competitors in the market.
- Pricing needs to be competitive but also depends on whether the firm wants to use price as a competitive aggressive weapon or not.
7
Q
Monopoly:
A
- Where one supplier is serving the whole market.
- Legislation has protected the monopoly from competition
- In affect monopolies can charge whatever price they want, but this is affected by legislation and the increasing availability of resources from abroad.
8
Q
Oligopoly:
A
- Where a small number of powerful providers dominate the market between them.
- Pricing is very sensitive in such markets.
- Price wars between oligopolists benefits the consumers as this drives down prices, but ultimately just cuts the profit margins of both firms.
- A threat in an oligopoly can be sudden changes in price by one organization.
9
Q
Monopolistic competition:
A
- Where there are many competitors but all competitors have a product differentiated from the rest.
- Price isn’t a key factor in these markets.
- Emphasis in these markets is on branding and adding value
10
Q
What is perfect competition?
A
- Direct opposite to a monopoly and is hard to find.
- When many sellers in the market have products which do not differentiate from competition, so all products are the same in the eyes of the consumer.
- Therefore, none of them increase their price as they cannot justify as they are unable to differentiate.
11
Q
Channels of distribution:
A
- The balance of power between the manufacturer and intermediaries will affect the prices agreed which ultimately will affect the firms pricing decisions to the end consumer.
