Marketing Chapter 1: Pricing Strategy Elements

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Which of the following is NOT a key element of a pricing strategy according to the text?

Value communication

What is the primary purpose of a good pricing policy according to the text?

To achieve short-term objectives without changing customer/supplier/sales rep behaviors that can undermine future sales/profit

What is the main challenge in determining a profitable pricing decision?

All of the above

What is the primary purpose of the telecommunication companies' pricing strategy described in the text?

To attract new customers by offering a discounted rate for the first year

Which of the following is a key factor that determines a firm's pricing policy?

All of the above

What is the primary role of pricing tools and optimization models in determining pricing decisions according to the text?

To complement managerial experience and judgment in making profitable pricing decisions

Which of the following is NOT a key step in creating value for customers?

Producing goods or services at the lowest possible cost

What is the primary responsibility of marketing or market research in value creation?

Estimating the value different benefit combinations represent to customers

Which of the following is an alternative approach to value creation mentioned in the text?

The text does not mention alternative approaches

What is the key challenge in price and value communication according to the text?

The proliferation of products and communication vehicles

Which of the following is NOT a component of price and value communication?

Conducting market research to identify customer needs

Which of the following statements is TRUE according to the text?

Firms that create the most value are most rewarded by improvements in their own market value

Which of the following is NOT a factor that can influence value and value perceptions according to the text?

Customer demographic

What is the key principle described in the text for effective pricing strategy?

Communicating the right message to the right person at the right time

Which of the following is NOT an example of a price structure mentioned in the text?

Dynamic pricing based on time of day (e.g. airline peak vs off-peak)

What is the primary benefit that Ryanair's price structure has provided the company according to the text?

Higher revenue growth and market capitalization

Which of the following is NOT a key element of pricing policy discussed in the text?

Segmenting customers based on demographics

Study Notes

Value Creation

  • Value creation is creating value cost-effectively and convincing people to pay commensurate with that value.
  • Firms that are most adept at creating value for customers are most rewarded by improvement in their own market value.
  • The key to creating good value is first to estimate how much value different combinations of benefits could represent to customers.

Alternative Approaches to Value Creation

  • No additional information provided.

Price and Value Communication

  • Price and value communication is creating value in product/service, translating the value into value-based price structure, and making customers recognize the value they are obtaining.
  • Developing price and value communications is very challenging because of proliferation of products and communication vehicles.
  • Pricing policy refers to rules or habits that determine how a company varies its prices when faced with factors other than value and cost to serve that threaten its ability to achieve its objectives.
  • Good pricing policy allows firms to achieve their short-term objectives without changing customer/supplier/sales rep behaviors that can undermine future sales/profit.
  • Poor pricing policy can adversely affect customers' willingness to pay as much in the future.

Pricing Level

  • Pricing level (Price Setting) refers to a static (unchanged) level of the price of a product or service.
  • Economic theory suggests that the profit-maximizing price level is where marginal revenues are equal to marginal costs.
  • Accounting systems can make relevant cost calculation problematic, making profitable pricing decisions challenging.
  • Pricing tools and optimization models, such as conjoint analysis, can be used.
  • There is no substitute for managerial experience and judgment.

Price Structure

  • Price structure refers to different prices and discounts offered on sales orders.
  • Price per unit can be used, such as price per ton, liter, or kg.
  • Different prices can be offered for different segments.
  • Examples of price structures include airlines offering different prices for peak and off-peak times, and Ryanair offering additional services for fees.

Test your knowledge on defining the six elements of a pricing strategy and understanding value creation in marketing. Explore the concept of creating value cost-effectively and convincing customers to pay in alignment with that value.

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