Marketing Pricing Strategies

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Questions and Answers

What is the primary determinant in value-based pricing?

Competitors’ prices

Seller's cost

Buyers’ perceptions of value (correct)

Market demand

Which pricing strategy involves consistent pricing with few discounts?

Premium pricing

Everyday low pricing (EDLP) (correct)

Value-added pricing

High-low pricing

What does value-added pricing achieve?

Reduces perceived value

Increases production costs

Differentiates offers and builds pricing power (correct)

Focuses solely on sales volume

What characterizes high-low pricing?

Higher prices with frequent temporary promotions Signup and view all the answers

Which statement best describes cost-based pricing?

It is product driven and based on cost. Signup and view all the answers

What does pricing power enable a business to do?

Maintain market share while increasing prices Signup and view all the answers

Which of the following best describes cost-based pricing?

Establishing prices according to production and selling costs plus a fair return Signup and view all the answers

What is a potential drawback of relying on cost-based pricing?

It can lead to undervaluing the product Signup and view all the answers

What is an example of good-value pricing?

Maintaining high-quality products while balancing service and price Signup and view all the answers

Which costs are classified as fixed costs?

Rent and executive salaries Signup and view all the answers

Variable costs are best defined as what?

Costs that fluctuate with changes in production volume Signup and view all the answers

Which pricing strategy is maintained with little to no temporary discounts?

Everyday low pricing (EDLP) Signup and view all the answers

What is the main objective of cost-plus pricing?

To set prices based on production and marketing expenses plus a markup Signup and view all the answers

Break-even pricing aims to achieve which of the following?

Recovering production and marketing costs Signup and view all the answers

What characterizes competition-based pricing?

Setting prices according to competitors' pricing strategies and market offerings Signup and view all the answers

Which of the following is a disadvantage of cost-plus pricing?

It does not account for demand and market competition Signup and view all the answers

What does target costing begin with?

An ideal selling price Signup and view all the answers

In a market characterized by pure competition, which statement is true?

No single buyer or seller has much effect on the going market price. Signup and view all the answers

How does monopolistic competition differ from pure competition?

Sellers can differentiate their offers in monopolistic competition. Signup and view all the answers

What is a defining characteristic of oligopolistic competition?

Few sellers who are responsive to each other's pricing. Signup and view all the answers

Which factor must a marketer understand before setting prices?

The relationship between price and demand Signup and view all the answers

Which market type involves only one seller with regulated pricing?

Monopoly Signup and view all the answers

Who typically influences pricing decisions within an organization?

Various stakeholders Signup and view all the answers

What results from consumers basing their judgments on competitor prices?

Increased product value perception Signup and view all the answers

What happens to demand when prices increase for most goods?

Demand decreases as prices increase. Signup and view all the answers

Which of the following best describes elastic demand?

Demand changes significantly with small price changes. Signup and view all the answers

In which situation might a higher price lead to higher demand?

For luxury or prestige goods. Signup and view all the answers

Which factor is NOT mentioned as influencing pricing strategies?

The size of the market. Signup and view all the answers

How do economic factors like inflation affect pricing strategies?

They influence consumer spending and company costs. Signup and view all the answers

What is the primary goal when setting prices for resellers?

To provide resellers with a fair profit margin. Signup and view all the answers

What type of demand is characterized by minimal changes with slight price adjustments?

Inelastic demand. Signup and view all the answers

Which external factor is crucial in determining a firm's pricing strategy?

Government regulations. Signup and view all the answers

Study Notes

Pricing

Price is the amount of money charged for a product or service. It encompasses all the values customers exchange for having or using a product or service.
Price is the only element of the marketing mix (product, price, place, promotion) that produces revenue; all other elements represent costs.

What Is a Price?

Price is the amount of money charged for a product or service.
Price is the sum of the values that customers exchange for the benefits of owning or using a product or service.

Major Pricing Strategies

Considerations in Setting Price:
- Product costs (price floor) - no profits below this price.
- Competition and other external factors (competitors' strategies, prices, marketing strategy, objectives, and mix, nature of the market and demand).
- Consumer perceptions of value (price ceiling) - no demand above this price.

Customer Value-Based Pricing

Value-based pricing uses buyer perceptions of value, not seller cost, as the key to pricing.
Cost-based pricing is product-driven.
Value-based pricing is customer-driven; price is set to match perceived value.

Major Pricing Strategies - Figure 10.2

Cost-based Pricing:
- Design a good product.
- Determine product costs.
- Set price based on cost.
- Convince buyers of the product's value.
Value-based Pricing:
- Assess customer needs and value perceptions.
- Set target price to match customer perceived value.
- Determine costs that can be incurred.
- Design product to deliver desired value at target price.

Good-value Pricing

Offering the right combination of quality and good service at a fair price.
Types:
- Everyday low pricing (EDLP)
- High-low pricing

Everyday Low Pricing (EDLP)

Involves charging a constant everyday low price, with few or no temporary price discounts.
Example: Walmart

High-low Pricing

Involves charging higher prices on an everyday basis, but running frequent promotions to lower prices temporarily on selected items.
Example: Metro, Carrefour

Value-added Pricing

Attaches value-added features and services to differentiate a company's offerings from the competition.
This enables higher prices and builds pricing power.

Pricing Power

Ability to resist price competition, justify higher prices and margins without losing market share.

Cost-Based Pricing

Sets prices based on costs for producing, distributing, and selling the product, plus a fair rate of return for effort and risk.
Two key factors:
- Fixed costs: Costs that do not vary with production or sales level (rent, heat, interest, executive salaries).
- Variable costs: Costs that vary directly with the level of production (raw materials, packaging).
Total cost: Sum of fixed and variable costs given a level of production.

Cost-Plus Pricing / Markup Pricing

Adds a standard markup to the cost of the product.
Benefits: Sellers are certain about costs; price competition is minimized; buyers feel it's fair.
Disadvantages: Ignores demand and competitor prices.

Break-even Pricing (Target-return Pricing)

Setting price to break even on the cost of making and marketing a product, or setting price to achieve a target return.

Analyzing the Price-Demand Relationship

The demand curve shows the number of units the market will buy in a given period at different prices.
Demand and prices are inversely related.
For prestige goods, higher prices can equal higher demand.

Price Elasticity of Demand

Measures the sensitivity of demand to changes in price—how much demand changes when the price changes.
Inelastic Demand: Demand hardly changes with a small price change.
Elastic Demand: Demand changes greatly with a small price change.

The Economy and Other External Factors

Economic factors (boom/recession, inflation, interest rates) affect pricing decisions.
Reseller response to price: Prices must consider reseller's fair profit to encourage support.
Government influence: Government regulations significantly impact pricing decisions.
Social concerns: Important considerations in setting prices.

Overall Marketing Strategy, Objectives, and Mix

Target costing starts with a desired price and then targets costs to meet the price.

Organizational Considerations

Importance of who should set prices & who can influence pricing.

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Description

Explore the fundamental concepts of pricing within marketing. This quiz covers the definition of price, the various pricing strategies, and the major considerations in setting a price. Test your understanding of customer value-based pricing and other key factors in determining prices.