Marketing Chapter 10 Summary

CH10 Marketing Summary

• This summary is for CH10 marketing students in the Baims app.
• For more summaries, visit the Baims website or contact 0503028916.

What is a Price?

• Price is the amount of money charged for a product or service.
• It's the sum of all values customers give up for benefits.
• Price is the only element in the marketing mix that produces revenue. All other elements are costs.

Factors to Consider When Setting Prices

Customer Perceptions of Value

• Customer-oriented pricing understands consumer value.
• Setting a price that reflects that value.
• Value-based pricing uses buyer perceptions, not seller costs, as the key to pricing.
• Price is considered before the marketing campaign is planned.

Cost-Based Pricing

• Based on costs of production, distribution, and sales, plus a fair return for effort and risk.
• Adds a standard markup to the product's cost.

Good-Value Pricing

• Combines quality, service, and fair price.
• Existing brands are redesigned for more quality at the same price or same quality for a lower price.

Everyday Low Pricing (EDLP)

• Involves consistently charging a low price with few/no temporary discounts.

High-Low Pricing

• Involves charging higher everyday prices with frequent promotions to lower prices temporarily.

Types of Costs

• Fixed costs: Costs that don't change with production or sales (rent, heat).
• Variable costs: Costs that change with production level (raw materials, packaging, executive salaries).
• Total costs: Sum of fixed and variable costs.
• Average cost: Cost associated with a given output level.

Value-Added Pricing

• Adds features and services to differentiate offerings.
• Supports higher prices and builds pricing power.
• Pricing power allows for higher prices without losing market share.

Other Internal and External Considerations Affecting Price Decisions

• Overall Marketing Strategy: Target costing starts with an ideal selling price based on consumer value, then targets costs to ensure that price is met.
• Organizational considerations: Determines who sets and influences prices.
• Market and Demand: Understands the relationship between price and demand, pricing in different market types, analyzes the relationship, and the price elasticity of demand.
• Competitor strategies and Prices: Compares offerings in terms of customer value, competitor strengths, pricing strategies, customer price sensitivity.
• External factors: Economic conditions, reseller response to price, government, social concerns.

New-Product Pricing Strategies

Market-Skimming Pricing

• High initial prices to quickly collect revenue from different market segments.
• Product quality and image must support the price.
• Buyers must want the product at the price.
• Competitors should not easily enter the market.

Market-Penetration Pricing

• Low initial price to quickly attract buyers.
• Effective for price-sensitive markets.
• Inverse relationship between production/distribution costs and sales growth.
• Low prices make it challenging for competitors to enter the market.

Product Mix Pricing Strategies

Product-Line Pricing

• Considering cost differences, customer evaluation of features, and competitors' prices within a product line.

Optional-Product Pricing

• Adds optional or accessory products to the main product.

Captive-Product Pricing

• Products that must be used with the main product. For services, it's two-part pricing (fixed fee + variable usage fee).

By-Product Pricing

• Products with little or no value, resulting from the main product.

Product Bundle Pricing

• Several products offered at a reduced price.

Geographical Pricing

• FOB-origin (free on board): Goods delivered to carrier, ownership/responsibility to the customer.
• Uniform-delivered: Same price plus freight to all customers, regardless of location.
• Zone pricing: Customers in a specific zone pay a single price.
• Basing-point pricing: Seller designates a city as a base, and charges shipping costs from that city.
• Freight-absorption pricing: Absorption of all/part of the shipping cost to attract business in competitive markets.

Price-Adjustment Strategies

• Discounts and allowances: Reduce prices to reward customer responses (early payment, promotion).
• Segmented pricing: Different prices for different customer segments (customer, product form, location).
• Psychological pricing: Prices based on perceived value, not just economic factors.
• Promotional pricing: Temporary pricing below the list price or cost to increase demand (loss leaders, special events).
• Dynamic pricing: Continuously adjusts prices to meet individual customer characteristics/situations.
• International pricing: Prices in a specific country based on country-specific factors.

Initiating Pricing Changes

• Reasons for price cuts: Excess capacity, increased market share.
• Reasons for price increases: Cost inflation, increased demand, lack of supply.

Buyer Reactions to Pricing Changes

• Buyer reactions to price increases: Company "greed," product is "hot," new models available.
• Reasons for price cuts: New models to be released, Models not selling well, Quality concerns.

Competitor Reactions to Pricing Changes

• Competitors usually react when the number of firms is small, products are uniform, and buyers are well-informed about products/prices.