Unit 18 The marketing mix - Price Flashcards
Why is price a key element in the marketing mix?
It determines the level of demand for a product.
It determines the degree of value added.
Influences revenue and profits made by the business.
Help establish the psychological image and identity of a product.
What’s the relationship between price and PED?
It measures the responsiveness in demand to a price change, therefore helps with key pricing decisions.
What are the factors that determine price elasticity?
- How necessary the product is
- How many similar competing products or brands there are
- The level of consumer loyalty
- The price of the product as a proportion of consumer income
How can businesses APPLY ped?
- Helps create more accurate sales forecasts. i.e if the business is considering a price increase it can construct a forecasted demand chart in response to the change in price.
- Assists in pricing decisions, and can adapt price discrimination based on demand from different consumers.
What are the drawbacks of calculating PED?
PED assumes that nothing else has changed.
PED can become outdated quickly because consumers’ patterns and tastes change.
How do managers determine the appropriate price?
- by considering the cost of production: price must cover all the costs of production to make a profit
- Competitive conditions in the market: the more competition there is, the more likely it is that prices will be fixed similar to those fixed by other rival businesses.
- Marketing objectives: Trying to promote a luxury product? then low prices wouldn’t do..
- Price elasticity of demand
- is it a new product or an existing product?
What are a few cost-based pricing methods?
Markup pricing - adding a fixed markup for profit to the unit price of a product
Target pricing - setting a price that will give a required rate of return at a certain level of output/sales.
Full cost/ absorption costing: Setting a price by calculating a unit cost for the product and then adding a fixed profit margin.
Contribution cost pricing- setting prices based on the variable costs of making a product in order to make a contribution towards fixed costs and profit.
What are a few competition-based pricing?
Destroyer pricing - Noting competitors’ prices and then deliberately undercutting them in order to drive them out of the market.
Market pricing - price is based on the conditions of the market.
i.e Dynamic pricing - offering goods at a price that changes with demand and consumer’s ability to pay - booking.com hotel accommodation prices
Price discrimination - Possible to charge different groups of people different prices. i.e air tickets, 1st class, 2nd class.
Price leadership - There is one dominant firm, and other firms charge a price based on that.
What is penetration pricing?
Setting a relatively low price is often supported by strong promotion in order to achieve a high volume of sales.
What is price skimming?
Setting a high price for a new product when a firm has a highly differentiated product.
What is psychological pricing?
Psychological pricing is the practice of setting prices lower than a whole number. The idea behind psychological pricing is that customers will read the slightly lowered price and treat it lower than the price it actually is.
