Marketing Management - Product and Price Decisions
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Questions and Answers

What does 'price' refer to, in the context of marketing?

The number of monetary units a buyer must hand over for one unit of a product.

What key factor shapes how consumers perceive price?

The customer's perception

What are the three major pricing strategies?

  • Cost-Based Pricing (correct)
  • Value-Based Pricing (correct)
  • Market Share Pricing
  • Competition-Based Pricing (correct)

    • What does 'price elasticity' measure?

    <p>The relationship between price changes and the corresponding changes in demand</p> Signup and view all the answers

    What are two key factors that influence whether or not competitors react to price changes?

    <p>The number of firms in the market and the uniformity of the product.</p> Signup and view all the answers

    What is considered the most important aspect of cost analysis when making price decisions?

    <p>The distinction between fixed and variable costs.</p> Signup and view all the answers

    How does dynamic pricing work?

    <p>Dynamic pricing charges different prices for a product over various time periods, while keeping other factors such as location, performance, and volume consistent.</p> Signup and view all the answers

    What are some examples of dynamic pricing?

    <p>Examples include price differentiations based on the time of day, weekdays, or seasons.</p> Signup and view all the answers

    What is the main idea behind personalized pricing?

    <p>Personalized pricing tailors prices to individual customers based on their specific characteristics and buying behavior.</p> Signup and view all the answers

    What key aspect of personalized pricing often raises concerns?

    <p>The potential negative impact on fairness perceptions</p> Signup and view all the answers

    Companies are more likely to implement dynamic pricing than personalized pricing.

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

    Explain the concept of 'relationship-based pricing' and one key benefit.

    <p>Relationship-based pricing aims to maximize long-term profits generated by individual customers, often through loyalty programs and incentives; it encourages customer retention which can significantly benefit a business in the long run.</p> Signup and view all the answers

    What are the two primary strategies online platforms use to monetize data?

    <p>The two main monetization strategies are data licensing and data-based targeting services.</p> Signup and view all the answers

    How does the concept of 'privacy by design' relate to data collection practices?

    <p>Privacy by design emphasizes collecting only the necessary data and storing it for as long as needed; it minimizes the collection of personal information.</p> Signup and view all the answers

    What is a common approach to price communication that aims to create an impression of higher value?

    <p>Ending prices in triple or quadruple nines, such as $9.99 or $99.99</p> Signup and view all the answers

    What is one example of price deception?

    <p>Misleading reference pricing claims, where sellers manipulate the original price to create the impression of a larger discount.</p> Signup and view all the answers

    Predatory pricing is an illegal practice in all countries.

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

    Provide an example of 'price deception' as mentioned in the text.

    <p>The example provided was a US grocery store clerk who replaced a $2.49 price sticker with a sale sticker that showed the same price but claimed the original price was $2.99.</p> Signup and view all the answers

    Explain the 'left-digit effect' and how it influences pricing decisions.

    <p>The left-digit effect suggests that customers tend to focus on the first digit of a price and round down to the nearest whole number; this can lead retailers to use prices ending in 90 or 99 to create the illusion of a lower price.</p> Signup and view all the answers

    Describe the 'Veblen effect' and provide an example.

    <p>The Veblen effect describes the phenomenon where demand for a product increases as its price rises; this occurs often when consumers value higher prices as an indicator of quality or prestige; an example is the luxury brand Chivas Regal, which raised prices by 20%, leading to a significant increase in sales.</p> Signup and view all the answers

    What is the 'compromise effect', and what is a potential outcome?

    <p>When a very expensive product is added to a product range, the previously most expensive product appears less costly in comparison, potentially leading to an increase in its sales.</p> Signup and view all the answers

    Price transparency can have both positive and negative impacts on a company's profit.

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

    Provide an example of how price transparency can benefit a business.

    <p>An example mentioned in the text is the Swiss company, Digitec Galaxus, which has made price transparency a policy by disclosing the historical price development of all its products, potentially building trust with customers and differentiating itself from competitors.</p> Signup and view all the answers

    The digital world has increased the cost of monitoring price changes.

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

    State one potential ethical concern with personalized pricing?

    <p>One potential ethical concern is that personalized pricing can lead to price discrimination and unfairness, where similar customers are charged different prices based on factors that may be irrelevant to the product's value.</p> Signup and view all the answers

    What is one reason why companies might focus on increasing price elasticity for price cuts?

    <p>Companies may aim to increase price elasticity for price cuts to enhance the impact of the price reduction on demand, potentially leading to greater increases in sales volume and market share.</p> Signup and view all the answers

    What is one potential ethical issue related to price discrimination?

    <p>Personalized pricing, which tailors prices to individual customers based on their perceived willingness to pay, can potentially create ethical concerns about fairness and discriminatory practices towards certain groups or individuals.</p> Signup and view all the answers

    Ethical price issues are unlikely to harm a company's reputation.

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

    Study Notes

    Marketing Management - Product

    • Customer value stems from three product levels: core customer value, actual product, and augmented product.
    • Product decisions encompass quality, features, packaging, style, design, branding, and support services.
    • Brands shape customer perception rationally and emotionally, differentiating a firm's offerings.
    • Product and brand architecture development are vital for managing products over time.
    • Digitalization significantly impacts product innovation and related processes.
    • Ethical considerations concerning products are widespread.

    Marketing Mix: Price

    • Price plays a significant role in the marketing mix, impacting business immediately.
    • Price management presents unique challenges.
    • Price topics include: definition and importance, challenges of price management, managing price over time, price in a digital world, and ethical price issues.

    Price Decisions

    • Customer perception is the primary element for pricing decisions.
    • Value must always be considered relative to price for pricing strategies.
    • Customer-based, cost-based, and competitive-based strategies are core pricing techniques.

    Pricing Strategies

    • Cost-based pricing: Focuses on fixed and variable costs, independent of the price-response function.
    • Customer value-based pricing: Aligns price with customer's perceived value, considering factors like competitors' prices and company costs.
    • Competition-based pricing: Determines price based on competitors' prices and consumer reaction.

    How is Price Determined?

    • Price signals perceived value; it must cover internal costs.
    • This balance is essential for a successful pricing strategy.

    Customer-Value Based Pricing

    • Customer-perceived value is crucial in this approach.
    • This pricing method is interlinked with other marketing mix variables before proceeding with the marketing program itself.
    • Good value does not equate to a low price, but rather a proper balance of offerings and price.
    • Customer willingness to pay is the key metric.

    Cost-Based Pricing

    • The most important aspect is distinguishing fixed and variable costs.
    • Fixed costs do not depend on volume, while variable costs do.
    • Determining cost function is easier as necessary information is internal.
    • Costs are not the basis for setting price but for determining if a product should be manufactured.

    Competition-Based Pricing

    • Competitors' prices strongly influence sales volume.
    • Competitors' reactions to pricing adjustments are equally significant.
    • Analyzing competitors' pricing actions—their current pricing, relevant competitors, and projected future behavior—is essential.

    Managing "Price" Over Time

    • Understanding consumer reactions to price changes, their impact on the company, and the degree of pricing freedom is critical
    • Analyzing own price elasticity and competitor's price elasticity.

    When to Cut or Increase Prices

    • Motives for price cuts include excess capacity, falling demand, weakened competition, gaining market share at lower costs, and competitor cuts.
    • Motives for price increases include better profits, rising costs, or over-demand.

    What to Expect When Increasing or Cutting Prices

    • Price repositioning downward often succeeds due to positive consumer response.
    • Price repositioning upward is more complex and requires significant adjustments.
    • Consumer responses to price changes may not be straightforward.

    What Will Competitors Do?

    • Competitors are more likely to react when the number of involved firms is small, the product is uniform, or buyers are well-informed.

    How To Understand The Price-Demand Relationship

    • Understanding price-demand relationship is crucial for optimizing prices. This relationship is measured via "price elasticity".
    • Price elasticity metrics measure how own demand and competitor's demand change based on changes in the own price or competitors' price.

    Interpreting Price Elasticity

    • Own-price elasticity measures the percentage change in own demand given a percentage change in own price
    • Cross-price elasticity measures the percentage change in own demand given a percentage change in the price of a competitor's good.

    When Do Price Changes Have a High Impact?

    • Market, customer and product characteristics influence the impact of price changes. Factors such as high similarity between competing products, frequent purchase frequency of the products, and mass-market positioning, significantly contribute to a highly elastic response to price changes.

    How Do Real-World Price Elasticities Look Like?

    • Price elasticities vary across industries and need to be determined on a case-by-case basis.
    • The compact car segment is an example where price elasticity is high (demand highly depends on price).

    Static Price-Elasticity

    • Static price-elasticity is a simplified representation, and some price changes will have stronger impact than measured.
    • Consumer expectations about price ("reference price") play a significant role, which could result in either higher or lower elasticity after a certain point.

    Five Methods to Determine Price Elasticity

    • Expert judgements, direct customer surveys, indirect customer surveys, experiments, and market observations are ways used to determine the price quantity ratio. Each has advantages and disadvantages.

    The Psychology of Pricing

    • Customer perception of the price, including factors like different types of pricing psychology that influence customer perception, is crucial for pricing decisions.
    • Factors such as left-digit effect, Veblen effect, compromise effect, value effect, endowment effect, and decoy effect shape customer price perception.

    Price Communication

    • Effective communication of price changes, whether increases or decreases, is critical.
    • Clear communication can mitigate potential negative effects on sales volume, or help customers better understand the value of the products, and/or strengthen customer loyalty.

    Classic Ways of Price Communication

    • Prices ending in ".99" or ".999" are common, and are often designed to make a price seem lower than it is.
    • Discounts are often communicated using whole dollar amounts.
    • Percentage off is usually not used, except in very large discounts.

    Innovative Ways of Price Communication

    • Explaining prices in terms of everyday items/transactions can convey affordability.
    • Transformation of price into a new visual/graphic currency can support brand's high value.
    • Use of anchoring price (e.g., from Steve Jobs’ iPad event.) communicates price psychology.

    When Price Changes

    • Communication of price changes (increases and decreases) is asymmetric.
    • Price reductions need to be communicated effectively, while price increases should be communicated less prominently.

    "Price" in a Digital World

    • Price is increasingly linked to data collection/usage.
    • Price transparency is becoming more important as consumer use of online price comparison sites increases.
    • Dynamic and personalized pricing are common digital practices to increase profit margin.

    Ethical Price Issues

    • Price deception, price discrimination, predatory pricing, cartels, and fraudulent refund policies are common ethical concerns in pricing.

    Summary of Key Learnings

    • Pricing has a direct impact on profitability, but the management process is complex.
    • The price-demand relationship, assessed through price elasticity, is critical to optimize pricing strategies.
    • Digitalization empowers consumers with pricing transparency, influencing demand and pricing decisions.
    • Ethical considerations in pricing are crucial to protect the brand's image and reputation.

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    Marketing Management: Price - Implementation - PDF

    Description

    Explore key concepts in marketing management focusing on product levels, the importance of branding, and pricing strategies. Understand the impact of digitalization on product innovation and the ethical considerations in pricing. This quiz covers essential topics necessary for effective decision-making in marketing.

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