Marketing Strategies - Pricing Quiz

Marketing Strategies - Pricing

• Pricing Approaches:
  • Cost-Based Pricing
  • Break-Even Pricing
  • Value-Based Pricing
  • Competition-Based Pricing

Cost-Based Pricing

• Simple cost-plus pricing: Add a standard markup to the product cost.
• Hospitality companies often use this approach.
• Example: Food and Beverage (F&B) cost markup is typically 28-32%.

Break-Even Analysis or Target Profit Pricing

• Aims to find the price where a firm breaks even or achieves a target profit.
• Break-even point: Where costs and revenue are equal (no profit or loss).

Break-Even Point Graph

• A graph representing sales and costs versus units sold.
• Shows the break-even point where total costs and sales are equal.
• Identifies the units sold needed to reach the break-even point.
• Shows the profit zone above the break-even point.
• Shows the loss zone below the break-even point.

Questions About Break-Even

• Calculate the number of days to reach the break-even point if 50 units are sold per day.
• Determine the number of days needed to achieve a $10,000 profit if 50 units are sold each day..
• Calculate the number of days required to break even if 50 units are sold daily at a price of $6 per unit.

Value-Based Pricing

• Focuses on the buyer's perception of value.
• Non-price factors build perceived value.
• Trade-off analysis: Assess customer willingness to pay.
• Companies evaluate customer price sensitivity to determine their pricing strategies.

Competition-Based Pricing

• Pricing strategies aligned with competitors' pricing.
• Less focus on costs or demand.
• Used in highly competitive markets.

New Product Pricing Strategies

• Prestige Pricing: Luxurious and elevated products priced high to support their positioning.
• Market-Skimming Pricing: Initially high prices in a price-insensitive market; can be effective short-term. Potential for competitors to enter the market and reduce prices.
• Market-Penetration Pricing: Low initial prices to quickly enter and gain market share in a price-sensitive market; relies on sales volume economics to lower costs.