Marketing Chapter 11: Pricing Concepts
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Questions and Answers

How does an increase in income typically affect consumer spending behavior?

  • Demand for lower-priced products increases.
  • Demand shifts from lower-priced products to higher-priced products. (correct)
  • Demand for higher-priced products decreases.
  • Consumers become indifferent to product prices.
  • What effect does the availability of close substitutes have on price elasticity of demand?

  • It increases the price elasticity of demand. (correct)
  • It has no impact on price elasticity of demand.
  • It decreases the price elasticity of demand.
  • It makes demand less sensitive to price changes.
  • Which of the following accurately describes fixed costs?

  • They are only incurred if a company is profitable.
  • They increase with more units produced.
  • They remain constant regardless of production levels. (correct)
  • They vary with production volume.
  • Why is price considered one of the most important factors in purchase decisions?

    <p>It directly generates revenue for the company.</p> Signup and view all the answers

    Which of the following pricing methods focuses primarily on comparing prices with competitors?

    <p>Competitor-based methods</p> Signup and view all the answers

    What is the correct formula for calculating the total cost of production?

    <p>Total Cost = Fixed Cost + Total Variable Cost.</p> Signup and view all the answers

    What role does price play in the marketing mix fundamentally?

    <p>It signals the quality of the product.</p> Signup and view all the answers

    In the context of break-even analysis, which factor is crucial for determining the break-even point?

    <p>Total revenue must equal total costs.</p> Signup and view all the answers

    Which of the following factors is NOT one of the 5 C’s that influence pricing decisions?

    <p>Marketing budget</p> Signup and view all the answers

    What is a challenge associated with managing price in the marketing mix?

    <p>It is often the least understood factor.</p> Signup and view all the answers

    Which type of market structure is characterized by a single firm controlling the market?

    <p>Monopoly</p> Signup and view all the answers

    What distinguishes monopolistic competition from pure competition?

    <p>Monopolistic competition involves differentiated products.</p> Signup and view all the answers

    In which type of competition do a few firms dominate the market?

    <p>Oligopoly</p> Signup and view all the answers

    What challenge do manufacturers face with pricing strategies in terms of the grey market?

    <p>Ensuring price stability across different markets.</p> Signup and view all the answers

    Which statement best describes pure competition?

    <p>Many firms sell commodities at the same price.</p> Signup and view all the answers

    What is the main focus of the 'second C' in the Five C’s of Pricing?

    <p>Understanding customer reactions</p> Signup and view all the answers

    How do consumers typically respond to price increases for essential goods such as milk?

    <p>They are generally less sensitive to price changes</p> Signup and view all the answers

    What pricing strategy is exemplified by Hermès for its luxury handbags?

    <p>Prestige pricing</p> Signup and view all the answers

    What distinguishes prestige products from other types when it comes to demand curves?

    <p>They exhibit a unique demand curve</p> Signup and view all the answers

    What best describes the price elasticity of demand for steak compared to milk?

    <p>Steak has higher elasticity due to available substitutes</p> Signup and view all the answers

    Study Notes

    Chapter 11: Pricing Concepts and Strategies: Establishing Value

    • This chapter covers pricing concepts and strategies in marketing.
    • Key learning objectives (LOs) are included to guide learning.
    • The importance of price in establishing value in marketing is explained.
    • The influence of the 5 C's (company objectives, customers, costs, competition, and channel members) on pricing decisions is illustrated.
    • Pricing methods (cost-based, competitor-based, and value-based) and strategies (EDLP, high/low, new product pricing) are discussed.
    • Pricing tactics targeted at channel members and consumers are identified.
    • Legal and ethical issues in pricing are summarized.
    • Disney's sophisticated pricing strategies for their amusement parks are highlighted.
    • Price is a strategic opportunity to create value and not an afterthought in the overall marketing mix.
    • Pricing signals quality; different prices can indicate different levels of quality.

    Role of Price in the Marketing Mix

    • Price is often a major factor in purchase decisions.
    • It's the only element of the marketing mix that generates revenue.
    • Managing price is crucial and often complex for marketers.

    The Five C's of Pricing

    • The 5 C's—company objectives, customers, costs, competition, and channel members—are interconnected to determine pricing strategy.

    1st C: Company Objectives

    • Profit orientation: Maximizing profits and target return pricing.
    • Sales orientation: Focus on sales volume over profit.
    • Competitor orientation: Basing pricing decisions on competitive pricing strategies.
    • Customer orientation: Focusing on value and understanding consumer needs.

    2nd C: Customers

    • Understanding consumer response to price is paramount.
    • Consumers value products that align with their needs and prices.

    Demand Curves & Pricing

    • Knowing demand curves reveals relationships between price and demand.
    • Demand increases as price decreases and vice versa.
    • Prestige products have unique demand curves.
    • Premium pricing is a strategy used with prestige products.

    3rd C: Costs

    • Variable costs change based on production volume.
    • Fixed costs remain constant regardless of production volume.
    • Total cost is the sum of variable and fixed costs.
    • Break-even analysis helps determine the point where revenue equals costs.

    4th C: Competition

    • Different degrees of competition influence pricing strategies.
    • Types of competition include monopoly (one firm), oligopoly (few firms), monopolistic competition (many firms with differentiated product), and pure competition (many commodities at the same price).

    5th C: Channel Members

    • Manufacturers, wholesalers, and retailers have varied perspectives on pricing.
    • Manufacturers need protections from grey market transactions.

    Pricing Methods & Strategies

    • Cost-based, competitor-based, and value-based pricing methods are used to determine prices.

    Psychological Factors

    • Value-based pricing comprises different strategies: New product pricing, Everyday Low Pricing (EDLP), and High/Low pricing.

    Everyday Low Pricing (EDLP)

    • EDLP, or everyday low pricing, saves customers the effort of finding the most affordable product, encouraging consumers to buy at a reasonable rate.

    High-Low Pricing

    • High-low pricing relies on sales events that incentivize purchases, including discounts and special offers.

    New Product Pricing Strategies

    • Price skimming and market penetration pricing are common strategies for new products.

    Pricing Tactics - Consumers

    • Pricing lining, price bundling, and leader pricing are examples of pricing tactics to encourage consumer purchases.

    Price Lining

    • Price lining sets a price floor and ceiling for a product range.

    Price Bundling

    • Bundled pricing involves offering multiple products or services at a lower price.

    Leader Pricing

    • Leader pricing focuses on popular items to attract customers, with the intention of also generating more purchases of complementary products.

    Consumer Price Reductions

    • Markdowns, coupons, and rebates reduce prices.

    Markdowns

    • Markdowns are used to clear out obsolete or slow-moving items, while also attracting customers.

    Quantity Discounts for Consumers

    • Larger quantities often result in a lower per-unit cost.

    Coupons & Rebates

    • Retailers are responsible for providing coupons, while manufacturers and providers deal with rebate issues.

    Business-to-Business Pricing Tactics & Discounts

    • Discounts for businesses include seasonal discounts, cash discounts, allowances (advertising and listing), quantity discounts, and uniform delivered pricing.

    Seasonal Discounts & Cash Discounts

    • Seasonal discounts encourage early purchases.
    • Cash discounts incentivize prompt payments.

    Allowances

    • Advertising and listing allowances can improve consumer behaviour and drive sales.

    Quantity Discounts

    • Quantity discounts incentivize bulk orders.

    Uniform Delivered Pricing

    • With uniform delivered pricing, the shipping cost remains the same for anywhere in the region of sale.
    • Pricing strategies can relate to misleading advertising, price discrimination, predatory pricing, and price fixing.

    Deceitful or Illegal Price Advertising, Price Fixing & Price Discrimination

    • Misleading advertising involves presenting a deceptive reference price to attract customers.
    • Price fixing involves coordinating with other companies to control prices.
    • Price discrimination involves charging different prices to different customers or resellers.
    • Predatory pricing involves setting prices very low in order to drive competitors out of business.

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    Description

    This quiz focuses on Chapter 11 of marketing principles, which delves into pricing concepts and strategies for establishing value. It covers essential pricing methods, the influence of the 5 C's, and legal considerations, with a case study on Disney's pricing strategies in amusement parks.

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