Marketing Chapter 9: Pricing Strategies

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Questions and Answers

What is the primary advantage of using captive-product pricing?

It increases customer retention through lower main product prices.

It ensures equal prices across all product lines.

It allows companies to sell main products at a loss. (correct)

It guarantees high sales of main products.

Which of the following best describes by-product pricing?

Pricing by-products to offset disposal costs and reduce main product prices. (correct)

Bundling multiple products together to increase overall sales.

Setting prices for additional features that enhance the main product.

Charging a premium for high-demand products.

What challenge must companies consider when implementing captive-product pricing?

Offering captive products for free as an incentive.

Avoiding excessive pricing on captive products to prevent customer resentment. (correct)

Maintaining the same price for all bundled products.

Ensuring complementary products are always available.

Which is an example of product bundle pricing?

Offering a combination of fast-food items at a reduced price. Signup and view all the answers

Optional-product pricing is mainly used for which purpose?

To offer additional features that enhance the main product’s value. Signup and view all the answers

What is a potential outcome for a company that sets excessively high prices on captive products?

Decrease in the overall sales of the main product. Signup and view all the answers

An example of captive-product pricing is:

Selling DVD movies at low prices while charging for the player. Signup and view all the answers

Which of the following best exemplifies the two-part pricing strategy?

Charging a flat fee for a service plus additional fees for added features. Signup and view all the answers

What is a characteristic of the skimming pricing strategy?

It gradually lowers prices as the product ages. Signup and view all the answers

Which condition is essential for the effectiveness of market-penetration pricing?

Production and distribution costs should decrease as sales volume increases. Signup and view all the answers

What does product line pricing seek to achieve?

Maximizing overall profitability from a total product mix. Signup and view all the answers

What is the primary focus of optional-product pricing?

Offering prices for optional or accessory products related to a main product. Signup and view all the answers

Which strategy involves setting prices for different products based on customer perceptions of value?

Product line pricing Signup and view all the answers

What condition must exist for skimming pricing to be effective?

Limited competition should be present. Signup and view all the answers

Which pricing strategy is designed to keep competitors out of the market?

Market-penetration pricing Signup and view all the answers

Captive-product pricing is primarily concerned with which of the following?

Pricing accessories or related products based on the main product's price. Signup and view all the answers

What is the primary goal of market-skimming pricing?

To maximize revenues from customers willing to pay a high price Signup and view all the answers

Which pricing strategy is primarily aimed at achieving a larger market share quickly?

Market-penetration pricing Signup and view all the answers

What key factor must companies consider when implementing product mix pricing strategies?

The overall profitability of the entire product line Signup and view all the answers

In optional-product pricing, what is considered the core product?

The main product that generates primary revenue Signup and view all the answers

What defines captive-product pricing?

Pricing complementary products separately while tying them to a core product Signup and view all the answers

What is a significant consideration for companies implementing market-penetration pricing?

Assessing the potential for competition based on price Signup and view all the answers

What aspect of customer behavior does value-based marketing particularly address?

The perceived worth of benefits received rather than the price paid Signup and view all the answers

What influence do ethical considerations have on pricing strategies?

They encourage maintaining long-term brand reputation over immediate profit Signup and view all the answers

Study Notes

Chapter 9: Pricing

Peloton exercise bikes sell at a premium price of 1,895plusa1,895 plus a 1,895plusa39 monthly membership fee.
Peloton's sales have doubled annually, driven by the COVID-19 pandemic and gym closures.
Buying a Peloton means more than a bike; it's a lifestyle and a connected community.
Features include live-streamed classes, an internet-connected tablet, and a sense of community.
Peloton is positioned similarly to SoulCycle, focusing on experience and community rather than just a workout.
Peloton offers a financing option, often comparable to the cost of multiple in-person classes.
Higher prices sometimes signal quality, but Peloton's initial lower price led to perceived lack of quality.

Major Pricing Strategies

Price is the amount charged for a product or service, the sum of values customers exchange.
Considerations in pricing include customer perceptions of value (ceiling) and product costs (floor).
Three main strategies: customer value-based, cost-based, and competition-based pricing.

Customer Value-Based Pricing

Sets price based on customer value perceptions, focusing on benefits for the consumer.
Cost-based pricing is product-driven (covering costs plus profit), while value-based pricing is customer-driven (reflecting perceived value).

Good-Value Pricing

Offers the right combination of quality and service at a fair price.
Addresses changing consumer attitudes by providing quality at a reasonable price.
- Examples include ALDI (quality basics at low prices) and Mercedes-Benz CLA (premium value at a reduced price).

Cost-Based Pricing

Sets prices based on production, distribution, and selling costs plus profit.
Types of costs include fixed costs, variable costs, and total costs.
Company Approaches can include low-cost producers (e.g., Walmart, ALDI), or high-value producers (e.g., Apple, BMW).

Break-Even and Target Return Pricing

Setting price to cover production costs or to reach a specific return.
Break-even volume = fixed costs / (price - variable costs). This helps determine minimum pricing.
Companies should balance target profits with realistic sales volumes at each price point.

Competition-Based Pricing

Sets prices based on competitors' strategies, costs, and market offerings.
Key questions include how the company's offering compares in value to those of competitors.

Other Internal and External Considerations

Internal factors: overall marketing strategy, objectives, marketing mix, and organizational considerations.
External factors: market demand and environmental factors.
Target costing: sets prices beginning with the ideal selling price and targeting costs to meet it.

Product Mix Pricing Strategies

Companies need to consider a total profitable price that works for a product mix, not just one product.
Pricing strategies include product line pricing (price steps between different products), optional-product pricing (pricing accessories), captive-product pricing (must be used with the product), by-product pricing (selling by products to offset costs), and bundle pricing (combining several products).

Price Adjustment Strategies and Price Changes

Companies adjust prices to account for customer differences and changing situations. This includes discount and allowance pricing, segmented pricing, psychological pricing, promotional pricing, geographical pricing, dynamic/personalized pricing, and international pricing.

Discount and Allowance Pricing

Discounts are straight reductions in price for specified periods or on large quantities. Examples: cash, quantity, functional, and seasonal discounts.
Allowances are promotional money given to retailers. Examples: trade-in and promotional allowances.

Segmented Pricing Strategies

Selling a product or service at different prices based on customer segments. Examples: student or senior discounts.

Psychological Pricing

Using prices to influence customer perceptions of quality. Customers often perceive higher-priced products as higher quality.

Promotional Pricing

Temporarily pricing products below list price to create urgency.

Geographical Pricing

Setting prices based on customer locations. Examples: FOB-origin, uniform-delivered, zone, basing-point, and freight-absorption pricing

Dynamic and Personalized Pricing

Continuously adjusting prices based on real-time conditions and individual customer characteristics.

International Pricing

Adjusting prices based on international factors like economic conditions, competition, regulations, consumer preferences, and costs (e.g., shipping, insurance, exchange rates).

Initiating Price Changes

Pricing cuts: excess capacity, declining demand, strong competition, or economic weakness.
Price increases can enhance profitability with demand exceeding supply, but risks perceived as price gouging.

Pricing Within Channel Levels

Price-fixing: illegal collusion to fix prices.
Predatory pricing is selling below cost to drive out competitors.
Robinson-Patman Act: Prevents unfair price discrimination across channels.
Deceptive pricing, including misleading reference prices or discounts, is also prohibited.

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Description

Explore the intricacies of pricing strategies in Chapter 9. This quiz delves into various pricing models like customer value-based and cost-based pricing, as well as specific examples like Peloton's premium position and community focus. Test your understanding of how pricing influences consumer perception and purchasing decisions.