Unit 9: Developing and Managing Pricing Decisions Flashcards
Pricing creates _________ whereas most marketing activities create _________.
revenue, costs
Pricing is perhaps the most important signal that the enterprise sends to the market about its _____________, so it must be _________ with the other marketing mix variables.
positioning, congruent
________ is the biggest indicator of quality.
Price
pricing is where the marketer shifts from __________ value for the customer to __________ value for the firm.
creating, capturing
Three different perspectives on price:
To the seller, price is revenue
To the consumer, price is the cost of something
Price allocates resources in a free-market economy
Therefore, a company’s ability to find ____________ in competing products is always more successful than merely _________ and hoping to make up the difference on sales volume.
meaningful differentiation. cutting price
Companies like Dell offered ______________, while Apple has added more ____________ for customers with every product and service introduction.
low cost, undifferentiated products
meaningful value
Your company makes high-end watches and is the most recognized brand in the market with a long history of perceived quality and status. Setting a __________ reinforces consumer notions of prestige and quality while maintaining ___________ for the company.
high price, high profitability
(PROFIT MAXIMIZATION)
Multiple product lines offering a variety of features at prices lower than the competition maximizes ________ which may lead to greater economies of scale, brand power and better return on investment.
market share
Your company is known for producing a large variety of good value cell phones at lower prices than the competition.
maximizing market share
introducing a car at a price significantly outside the established range may cause consumers to either question quality (at the ________) or value (at the ________).
low end, high end
Your company competes in a mature market for economy sedans. The market has well established price points ranging from $15,000 to $22,000.
maximizing competitive parity (status quo)
Most organizations typically price their offerings by applying a predetermined markup to its cost to make or obtain the product - an approach that is called __________ and fits within a category known as ___________
cost-plus pricing, cost-oriented pricing
That approach to pricing, though, does not take into account the most crucial aspect of how pricing actually works in the marketplace - the value of the offering as perceived by the customer, based on what they think it can do for them and how it compares with other offerings available to them.
cost-oriented pricing
____________ is harder and “requires a commitment to systematic, rigorous work,” but “the returns on that effort can be substantial,”
value-based pricing
_________ is that which is given up in an exchange to acquire a good or service
Price
Revenue
price charged to customers multiplied by the number of units sold
Price x Sales Unit = Revenue
Profit
Revenue minus expenses
Revenue - Costs = Profit
Profit drives….
growth, salary increases, and corporate investment
While not optimal, cost-oriented pricing is more prevalent because:
1.
2.
3.
- costs are relatively easy to estimate or measure
- easy to justify to stakeholders
- simplifies the pricing process
Basing the price of a product on its value to its chosen customers
Value-Oriented Pricing
2 key elements of value-oriented pricing:
- a value orientation: a focus on the economic value created by an organization’s product for a given customer
- set of processes to capture a portion of that value for the firm
at a given customer perceived value of our offering and a given cost of goods sold, we have to find some balance between the _____________ our offering (versus other competing offerings) and ___________________________ to this customer segment.
customer’s incentive to purchase, our firm’s incentive to sell the offering
In general, the more that the _______________ exceeds the _________, the greater the incentive is for the customer to make the purchase
customer’s perceived value, price
the more that the price exceeds our firms ______________ (which is the same thing as profit or margin), the more incentive our firm has to sell this product to this customer segment.
costs of goods sold
Using the value-pricing thermometer concept, pricing “too high” means pricing at a point that exceeds the ______________ when there is a negative incentive (or disincentive) for the customer to purchase our offering.
customer’s perceived value
A customer’s incentive to purchase is equal to:
perceived value (PV) minus price
A schematic often used to capture the key elements of value-based pricing is the __________________
value-pricing thermometer
Three critical inputs to any value-pricing decision:
- true economic value
- perceived value
- cost of goods sold
True Economic Value:
value a fully informed buyer would or should ascribe to the product (different by customer segments)
* cost of next best alternative + value of performance differential
Perceived Value:
value of the product as perceived by the customer and influenced by marketing efforts
Cost of Goods Sold:
typically represents the lower bound on the price an organization would be willing to set
