WK 9: PRICR

Question 1

Price

Answer 1

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

Question 2

Importance of Pricing:

Answer 2

• 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

Question 3

Internal and external Factors to consider when setting a price:

Answer 3

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

Question 4

Price floor:

Answer 4

no profits below this price

Question 5

Price ceiling:

Answer 5

no demand above this price

Question 6

Price Sensitivity:

Answer 6

measure of how responsive consumer demand would be to a change in price

Question 7

2 primary pricing strategies:

Answer 7

Value based pricing
Cost based pricing

Question 8

Cost based pricing

Answer 8

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

Question 9

Value based pricing

Answer 9

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

Question 10

There are 2 New Product Pricing Strategies

Answer 10

Price Skimming
Penetration Pricing

Question 11

Price Skimming Pricing

Answer 11

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:

1. Product’s quality and image should support the higher price
2. Product has or is perceived to have unique features
3. Competitors should not be able to enter and undercut price

Question 12

Prestige pricing:

Answer 12

when the price stays high throughout to signal prestige

Question 13

Market Penetration Pricing and when its used

Answer 13

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

Question 14

Price Adjustment Strategies:

Answer 14

strategies to adjust basic prices to account for various customer differences and changing situations

Question 15

Price Adjustment Strategies:

Answer 15

temporarily pricing below list price to create buying excitement and urgency

Question 16

Loss Leader Strategy:

Answer 16

popular item is priced below cost to attract customers, hoping that they will buy other, more profitable items

Question 17

Segmented Price Strategies:

Answer 17

selling a product or service at two or more prices, where the differences in prices is NOT based on differences in cost

Question 18

Product bundle pricing:

Answer 18

setting one price for a set of products sold together

Question 19

Dynamic Pricing:

Answer 19

continual adjustments to price to respond to changing consumer demands in real-time

Question 20

Higher priced products are perceived as __ quality

Answer 20

Higher

Question 21

Consumers use __ as a signal particularly when quality cannot be judged easily

Answer 21

Price

Question 22

The number 9: aprox __% of prices in advertising material ends with digital 9

Answer 22

60%

Question 23

Odd numbers: A price ending in a ___ typically 0 or 5, used by higher end brands indicates a deal

Answer 23

Whole number

Question 24

Pain of Paying
Disutility of spending money, can affected by:

Answer 24

Payment method
Timing of payment
Individual differences

Question 25

Less pain = _____

Answer 25

higher spending, more impulsive

Question 26

Reference Price:

Answer 26

serves as an anchor, can be internal

Question 27

PROS AND CONS OF VALUE BASE PRICING

Answer 27

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