WK 9: PRICR Flashcards
Price
amount of money charged for a product or service OR the sum of all values that consumers exchange for the benefits of having or using the product or service
Importance of Pricing:
- Key for capturing customer value
- Only elements in the marketing mix that produce revenue
- Strong determinant of market share and profitability
- The most flexible “P”
Sends a signal to consumers
Internal and external Factors to consider when setting a price:
INTERNAL:
Business objectives: does it capture market share? Maximize profit in the short term? Discourage competition from entering the market?
Product type and positioning: what will the price signal about your product?
Does it coordinate with the 3 other P?
EXTERNAL:
Type of market: monopoly?
Competitors strategies and prices
Price sensitivity of your consumers
Price floor:
no profits below this price
Price ceiling:
no demand above this price
Price Sensitivity:
measure of how responsive consumer demand would be to a change in price
2 primary pricing strategies:
Value based pricing
Cost based pricing
Cost based pricing
Decision starts with PRODUCT → ends with CUSTOMER
Product driven → setting price based on the cost of producing, distributing, and selling the product plus a fair rate of return for the company’s effort and risk
Adding a standard markup to the cost of the product → cost + mark up (profit) = price
Value based pricing
Decision starts with CUSTOMER → ends with PRODUCT
Centered around consumers needs
Pricing starts with consumer in mind → Involves assessing target customers needs and value perceptions → then setting price with customer perception of value
Price considerations can take place even before finalizing the product and determining the rest of the marketing mix
There are 2 New Product Pricing Strategies
Price Skimming
Penetration Pricing
Price Skimming Pricing
Set a high initial price for a new product to “skim” revenues by layer from the market → Company makes fewer BUT MORE PROFITABLE SALES
Strategy is used when:
- Product’s quality and image should support the higher price
- Product has or is perceived to have unique features
- Competitors should not be able to enter and undercut price
Prestige pricing:
when the price stays high throughout to signal prestige
Market Penetration Pricing and when its used
Set a low initial price to penetrate the market and get a large volume of sales → price is set between average variable cost and average industry price
Can attract a large number of buyers quickly and win a large market share
USED WHEN:
Products should appeal to the mass market rather than just a niche or small market
Consumers must be highly price sensitive → low price produces more market growth
Production and distribution costs must fall as sales volume increases
Must keep out competition and maintain low price
Price Adjustment Strategies:
strategies to adjust basic prices to account for various customer differences and changing situations
Price Adjustment Strategies:
temporarily pricing below list price to create buying excitement and urgency
Loss Leader Strategy:
popular item is priced below cost to attract customers, hoping that they will buy other, more profitable items
Segmented Price Strategies:
selling a product or service at two or more prices, where the differences in prices is NOT based on differences in cost
Product bundle pricing:
setting one price for a set of products sold together
Dynamic Pricing:
continual adjustments to price to respond to changing consumer demands in real-time
Higher priced products are perceived as __ quality
Higher
Consumers use __ as a signal particularly when quality cannot be judged easily
Price
The number 9: aprox __% of prices in advertising material ends with digital 9
60%
Odd numbers: A price ending in a ___ typically 0 or 5, used by higher end brands indicates a deal
Whole number
Pain of Paying
Disutility of spending money, can affected by:
Payment method
Timing of payment
Individual differences
Less pain = _____
higher spending, more impulsive
Reference Price:
serves as an anchor, can be internal
PROS AND CONS OF VALUE BASE PRICING
PROS:
-Stems from a deep understanding of customer needs and perceptions of value
-Relies on customers real WTP, allows higher price points
-Takes competitors into consideration
-More innovative products that resonate with target market
CONS:
-How to calculate differentiation value is less straightforward, requires market research
-Highly sensitive to what consumers use as a reference price
