Session 1 - Intro

Question 1

relevance of pricing

Answer 1

price is amount charged for a product

price = sum of the values that C. offer to obtain benefits possessing for a product o using it

Question 2

Impact of Price

Answer 2

Only element of Marketing Mix that captures the value
Price is the most important value of profit
Profit = PQ - (QVCu + CF)
Reality –> life-efforts needs to be added to !! (qualitative)

Question 3

Price Waterfall

Answer 3

provides measure of achieved net &pocket price vs target price
and not just price as printed in invoice price
enables firms to achieve the best prices in every transaction by identifying leakage at diff. price levels

Question 4

List price

Answer 4

gross price (reflect overall strategy, product value, competitive strength)
define list price internally to make the pricing process more structured & transparent

Question 5

Invoice Price

Answer 5

List price - “on invoice discounts”

sales team usually negotiate invoice price

Question 6

Net Price

Answer 6

Invoice - “off-invoice” (transaction costs, affects T. profitability)
e.g. allowances, bonuses, rebates (e.g. sals reps)

Question 7

Pocket Price

Answer 7

Net - all C. specific costs (“transaction + service cost”)
T.C = freight, cost of rush or non-standard orders
S.C = sales team, CS, training promotions, cost of credit
contribution margin of sale transaction can be determined by pocket price - COGS

Question 8

Cost Based

Answer 8

Aura for financial prudence
assumption that price can be set only in relation to cost
includes a profit percentage relative to cost

Question 9

Cost Based

Disadvantages

Answer 9

unitary cost changes depending on volumen (dependent on fix cost)
risk over/underpricing (missing opportunity)
increasing price to cover cost won´t lead automatically to profit
may ignore consumer´s role in he overall market
may ignore opportunity cost of the investment

Question 10

Cost –> Customer Base

Answer 10

price is not based on cost but on willingness to pay
capture customers valuation
you need to increase differentiation of decrease VCu to make profit

Question 11

Value Based Pricing

Answer 11

perceived value of customer

anticipate price - data gathering about Customer´s preferences

Question 12

Value Based

Disadvantages

Answer 12

market must educate Customers
communicate superior value (marketing/advert) before linking price to value
ignore cost&competition

Question 13

Value Based

Techniques

Answer 13

understand barriers of price setting (e.g constraints)
Exchange value/value based model
revenue&profit optimisation based on wtp&demand curve
assess wtp –> wtp function (ask about max. price they would pay)
Model should reflect your optimal price

Question 14

Value Based

Subcategories/Specifications

Answer 14

Elasticity - reflect differentiation (very negative - nearly commodity)
Subscriptions (sub-cat.)
Dynamic Pricing/ Revenue Management
Price Structures/Fences
Psychological Factors (hard to measure empirically) but very important

Question 15

Competition Based

Answer 15

Competitors price as reference
set price to increase C. base
seek larger market share through price
better - long run strategical pricing technique

Question 16

Competition Based

Disadvantages

Answer 16

“game theory” - how is your competitor going to react
very dependent to competitors reaction/movement within the market
think more dynamically- not static (how can you face competition having already an optimal price)
price may barely (or only) cover production costs, resulting in low profits
try to engage in other tactics to engage in customers (if price is not enough of an incentive - but you cannot change the price)

Question 17

Competition Based

Techniques

Answer 17

Penetration/Skimming
Promotion Management
Customised Pricing Bidding
Product Life Cycle Pricing

Question 18

Strategic Pricing pyramid

Answer 18

1. Value Creation (economic value, change design, segmentation)
2. Price Structure
   a) price metrics/hedges - foundation of pricing model (units which price is measured - should be aligned with cost served)
   b) barriers to arbitrage (fences) - obstacles to prevent C. arbitrage
3. Pricing &Communication of Value (value selling tools)
4. Pricing Policies (in/formal)
   E.g criteria for discounting
5. Price setting (optimisation cost)

Question 19

Price Waterfall

Benefits

Answer 19

higher profits (pintpoint leakages (C.products, transactions) and achieve best price at each stage)
better control
improved planning (desintegration of price into diff. components) - compare achieve vs target price at each level
Value based negotiation

Question 20

Cost Based Pricing

Advantages

Answer 20

straightforward &quickly
ensures all production &overhead cost are covered before profits are calculated
ensures stead &consistent ate of profit generation
fixed price based on cost (thus you know exactly max. possible cost)

Question 21

cost plus pricing

Answer 21

maximise profits by increasing production until MR=MC
charge a price determined by the demand curve
a) covers cost of product
b) add proportion as markup (provide profit margin enough for firm to earn its target rate of return