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A - Marketing spring > Sem 2 - Pricing > Flashcards

Sem 2 - Pricing Flashcards

1
Q

what is a price?

A

the amount of money charged for a product or a service, the sum of all the values that customers give up to gain the benefits of having or using a product or a service

the value the customer places on the product
what are they willing to give in order to gain something else

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2
Q

what is a price ceiling and price floor?

A

price floor: no profits are made below this price, product costs

Price ceiling: no demand above this price, customer perceptions of value

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3
Q

what are the major pricing strategies?

A
  • cost based pricing
  • customer value based pricing
  • competition based pricing
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4
Q

what is cost based pricing?

A

selling prices based on the costs for producing, distributing and selling the product plus a fair role for the effort and risk

  • design product
  • determine product costs
  • set price based on costs
  • convince buyers of product value
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5
Q

what are the types of costs involved in cost based pricing?

A
  • fixed costs (overheads) = do not vary with production or sales level
  • variable costs = costs that vary directly with th level of production
  • total costs = the sum of the fixed and variable costs for any given level of production
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6
Q

how can you decide how far to raise the price above the price floor in cost based pricing?

A

there are two methods

  • cost plus pricing
  • break even analysis and target profit pricing
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7
Q

what is the cost plus pricing method?

A

involves adding a standard mark up to unit cost

unit cost = variable cost + fixed costs / unit sales

  • company adds a desired mark up up to the unit cost
  • other companies in a supply chain will also add a mark up, so will consumers be willing to pay the end price?
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8
Q

what is th equation for cost plus pricing?

A

unit cost = variable cost + fixed costs / unit sales

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9
Q

what is the second method for cost based pricing?

A

break even analysis and target profit pricing

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10
Q

what is break even analysis and targeted profit pricing?

A

setting price to break even on the cost of making and marketing a product or setting price to make a target return

  • uses a break even chart
  • work out how many units we need to sell to break even
  • if volume is unlikely a price increase is necessary
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11
Q

what is customer value based pricing?

A

uses buyers perceptions of value, not the sellers cost, as the key to pricing

focuses on the price ceiling, not the floor

  • assess customer needs and value perceptions - set target price to match customer perceived value - determine costs that can be incurred - design to deliver desired value at target price
  • two types of value based pricing: good value pricing and value added pricing
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12
Q

what are the two methods used in customer value based pricing?

A

good value pricing

value added pricing

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13
Q

what is good value pricinc?

A

offering value for money that makes customers feel they are getting a fair deal

high/low price

everyday low pricing (EDLP)

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14
Q

what is added pricing?

A

attaching value added features and services to differentiate a company’s offers a d charging higher prices

augmented product: service wuaty, warranties

loyalty schemes

added value justifies the price

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15
Q

what is wrong with customer based values?

A

measuring the value customer will attach ro product is not a simple task

values are subjective

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16
Q

what is competition based pricing?

A

setting prices based on competitors, strategies, prices, costs and market strategies

  • how does the companies market offering compare with competitors offerings in terms of customer value
  • how strong are the competitors and what are their price straggles
17
Q

what other factors influence out pricing strategy and decison?

A

internal and external factors

18
Q

what are internal factors that affect price?

A
  • marketing strategy
  • marketing objectives
  • marketing mix
    (will your price be consistent with other products, are you trying t start a more exclusive product line)
19
Q

what are the types of external factors that affect pricing?

A
  • market type
  • elasticity of demand
    economy
20
Q

what are the types of markets?

A
  • pure competition = many firms, homogenous parodic, sellers have little influence over price
  • monopolistic comp = many firms, differentiated product, can influence price via marketing strategy less influence by competitor prices
  • oligopolistic competition = few forms, differentiated products, highly sensitive to competitors pricing strategies
  • pure monopoly = one elle, unique product, no substitutes
21
Q

what is elastic of demand

A

how sensitive is demand o changes in price

  • if demand hardly changes with a small change in price = inelastic
  • if demand changes greatly we say the demand is elastic
22
Q

when are buyers less price sensitive?

A
  • product is unique
  • product high in quality
  • substitute products are hard to find
  • cannot easily compare the quality of substitutes
  • expenditure on the product is low compared to income
23
Q

why is th economy an external factor when it comes to pricing?

A

what happens in an economic downturn?
- consumers cut back on unessary expenditure (marginal propensity to consume)

  • companies cut prices to increase demand
  • emphasise more affordable items in product mixes
  • justifying higher prices
24
Q

what are the new product strategies?

A

market skimming

market penetration

25
Q

what is marketing skimming?

A

producer sets a high price for a new high end product or a uniquely differentiated technician product

obtain maximum revenue form market before substitutes products appear

after this is accomplished the producer can lower the price drastically to capture the low end buyers and thwart the copy cats

26
Q

what is market penetration?

A

setting low price for a new proxy to attract a large number of buyers and a large market share

arias to quickly steal the market share

proft margin lower

works in price sensitive markets and when pridctuion costs decrease as sales volume increases

quickly attract new customers

27
Q

how can we maximise profits across the product mix?

strategies

A

product line pricing

captive product pricing

optional product pricing

product bundle pricing

28
Q

what is product line pricing?

A

setting price steps between products in product line based on cost differences, customer perceptions and competitior prices

greater difference in features the more consumers will pay

e.g. apple iPads, iPad mini, iPad pro, big iPad

29
Q

what is optional product pricing?

A

setting price for optional or accessible products with a main product

apple iPads, can buy the pens and keyboards separately

iPhones either buy earphones or adapter

30
Q

what is captive product pricing?

A

setting price for product that must be used along with a main product

razor blade but you have to use their razor heads

Dell printers are inexpensive but you have to use dell ink which is expensive

31
Q

what is product bundle mixing?

A

combining several products and offering the bundle at a reduced price

meal deals

xbox console and remote

consider them in groups now

32
Q

why are price adjustments used?

A

to stimulate demand and maximise profits

33
Q

what are the types of price adjustment strategies?

A
  • discount and allowance pricing
  • segmented pricing
  • psychological pricing
  • geographical / international pricing
  • promotional pricing
34
Q

what is discount and allowance pricing?

A

reducing prices to reward customer behaviours

  • quantity discounts (2 for 1)
  • seasonal discounts (jan sale)
  • early payment discounts
  • trade in allowances
  • promotional alliances
35
Q

what is segmented pricing?

A

adjustments to allow for different customers product and locations

  • customer segment pricing
  • product form pricing
  • location based pricing
  • time based pricing
36
Q

what is psychological pricing?

A

adjusting pricing for pyscholigcal effect

  • price as an indicator of quality
  • e.g. apple, increase price if gb goes up
  • odd prices
37
Q

what are geographical / international pricing?

A

involves deciding what prices to charge in the different areas / countries

  • how might shipping costs influence prices? (BREXIT)
  • night customers in other countries be wiling to pay more for the same produce?
  • might different markets cal for different approaches
38
Q

what is promotional prcinning?

A

temp reduction in prices to increase short run sales by creating excitement and urgency, however used t frequently they can have negative effect

  • discounts
  • low interest financing
  • longer warrantees
  • free maintanve

a lot of discounts are when food is out of date

A - Marketing spring (13 decks)

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