Week 7 - Price Flashcards
define price
the amount of money charged for a product or service or the sum value exchange by consumer for the benefit of consuming the product or service
3 major pricing strategies
- ) customer value based pricing
- ) cost based pricing
- ) competition based pricing
explain price ceiling and floor
price celling - no demand above this price
pice floor - no profits below this point
Define customer value-based pricing
Setting the price based on buyers perception of the value, rather than sellers cost
Price is considered along with the other marketing mix variables BEFORE the marketing program is set.
difference between cost based and value based pricing
value based:
asses customer needs and value perceptions
set target price to match customer perceived value
determine costs that can be incurred
design product to deliver desired value at target price
Cost based: design product determine product costs set price based on costs convince buyers of products value
define good value pricing
offering just the right amount combination of quality and good service that customers want at a fair price
define value added pricing
rather than cutting prices to match competitors, marketers adopt this strategy attaching valued added features and services to differentiate their offerings and this supports higher prices
Define cost based pricing
Setting prices based on the cost of producing, distributing and selling the product, plus a fair rate of return for it’s effort and risk
Main Approaches
Cost Plus pricing (mark up pricing)
Breakeven pricing (target return)
two main types of costs
fixed costs = costs that do not vary with production or sales level
variable costs = costs that vary directly with the level of production
total costs = the sum of fixed and variable costs
define cost - plus pricing (marking up)
Adding a standard markup to the cost of the product
Define Breakeven pricing (target-return pricing)
setting the price to breakeven on the costs of making and marketing a product or to make a desired product
define competition based pricing
setting prices based on competitors strategies, costs, prices and market offerings
Consumers make their judgments of product value by comparing the prices that competitors charge for similar products.
define target costing
Starts with an ideal selling price based on customer value considerations and then targets costs that will ensure the price is met
types of markets
pure competition
monopolistic competition (goods non homogeneous)
oligopolistic competition
pure monopoly
price strategies for new products:
Price skimming = setting a high price for a new product to skim maximum revenue from segments willing to pay the high price; company makes fewer but more profitable sales
Market penetration = setting a low price for a new product order to attract a large number of buyers and a large market share
define and explain price skimming
setting a high price for a new product to skim maximum revenue from segments willing to pay the high price; company makes fewer but more profitable sales
products quality and image must support high price (rolex)
cost of producing can not outweigh profits
competitors should not be able to enter the market easily and undercut higher price
define and explain market penetration
setting a low price for a new product order to attract a large number of buyers and a large market share
> market must be highly ‘price sensitive’ so that low price producers more markett growth
production and distribution costs must fall as sales volume increases
low price must help keep out competition and company adopting penetration must maintain low price position- otherwise competitive advantage of ‘price’ will be lost
explain product mix pricing:
product-line pricing - setting prices across an entire product line
optional-product pricing - pricing optional or accessory products sold with main product
Captive product pricing - pricing products that must be used with the main product
by product pricing - pricing low value by products to get rid of them
Product bundle pricing - pricing bundles of products sold together
explain price adjustment strategies
discount - reducing prices to reward customer responsiveness such as paying early
allowance -promotional monies said by suppliers to retailers in return for an agreement to feature the suppliers products in some way
segmented pricing -ajusting prices to allow for
differences in customers, products, or locations
physchological pricing - sellers consider physiology of prices not just economics
promotional pricing - temporally reducing prices to increase short-term sales
geographical pricing - adjusting prices to account for geography location of customers
dynamic pricing - adjusting prices continuously to meet the characteristics of individual customers and situations
international pricing - adjusting prices for international markets e.g. exchange rates
explain pricing prohibited acts
Price fixing: talking to competitors to fix prices
Predatory pricing: selling below cost with the intention of punishing or putting the competitor out of business
Price discrimination: offering different prices or trading terms to different customers
Resale price maintenance: Manufacturers cannot require retailers to charge specified prices
Deceptive pricing: stating or advertising prices that are not available to the customer (i.e. ‘bait’ pricing)
ACCC regulated
