Podcast
Questions and Answers
What does product line pricing primarily consider?
What does product line pricing primarily consider?
- Sales growth and production costs
- Discount practices applied to various products
- Seasonal demand fluctuations
- Cost differences, customer evaluations, and competitor prices (correct)
What is a characteristic of captive-product pricing?
What is a characteristic of captive-product pricing?
- It is used only for luxury items.
- It refers to services combining fixed and variable fees. (correct)
- It only applies to digital products.
- It involves products that may be used independently.
How does segmented pricing operate?
How does segmented pricing operate?
- It offers products at various prices regardless of differences in cost. (correct)
- It focuses on customer loyalty rewards.
- It requires a minimum quantity purchase to activate discounts.
- It bases price differences strictly on the production cost.
What is the main goal of by-product pricing?
What is the main goal of by-product pricing?
Which of the following is an example of discount pricing?
Which of the following is an example of discount pricing?
What is a characteristic of everyday low pricing (EDLP)?
What is a characteristic of everyday low pricing (EDLP)?
Which type of pricing involves adding features to justify higher prices?
Which type of pricing involves adding features to justify higher prices?
What determines the upper limit of pricing according to customer perceptions?
What determines the upper limit of pricing according to customer perceptions?
What typifies cost-based pricing?
What typifies cost-based pricing?
Which statement is true regarding fixed costs?
Which statement is true regarding fixed costs?
What is the sum of fixed and variable costs for a production level referred to as?
What is the sum of fixed and variable costs for a production level referred to as?
What essential factor influences the lower limit for pricing?
What essential factor influences the lower limit for pricing?
High-low pricing strategy is characterized by what?
High-low pricing strategy is characterized by what?
What is the primary goal of target costing?
What is the primary goal of target costing?
Which factor is NOT considered an organizational consideration in pricing decisions?
Which factor is NOT considered an organizational consideration in pricing decisions?
Before setting prices, marketers must understand which relationship?
Before setting prices, marketers must understand which relationship?
What is a key characteristic of market-skimming pricing?
What is a key characteristic of market-skimming pricing?
What does market-penetration pricing aim to achieve?
What does market-penetration pricing aim to achieve?
Which factor should NOT be a concern for market-skimming pricing strategy?
Which factor should NOT be a concern for market-skimming pricing strategy?
Which aspect is NOT typically evaluated in competitor pricing strategies?
Which aspect is NOT typically evaluated in competitor pricing strategies?
What is an important condition for the success of market-skimming pricing?
What is an important condition for the success of market-skimming pricing?
What primary factor does value-based pricing depend on?
What primary factor does value-based pricing depend on?
Which pricing strategy focuses on providing a balance of quality and price?
Which pricing strategy focuses on providing a balance of quality and price?
What is the main difference between value-based pricing and cost-based pricing?
What is the main difference between value-based pricing and cost-based pricing?
Which element of the marketing mix is unique in its ability to generate revenue?
Which element of the marketing mix is unique in its ability to generate revenue?
What does good-value pricing involve?
What does good-value pricing involve?
In which pricing strategy is the marketing program developed after the price is set?
In which pricing strategy is the marketing program developed after the price is set?
Which of the following is NOT a type of value-based pricing?
Which of the following is NOT a type of value-based pricing?
What is one reason pricing decisions are complex?
What is one reason pricing decisions are complex?
What is a requirement for segmented pricing to be effective?
What is a requirement for segmented pricing to be effective?
What characterizes psychological pricing?
What characterizes psychological pricing?
What is an example of promotional pricing?
What is an example of promotional pricing?
What can be a risk of using promotional pricing too frequently?
What can be a risk of using promotional pricing too frequently?
Which type of pricing is used for customers in different geographic locations?
Which type of pricing is used for customers in different geographic locations?
What does FOB-origin pricing imply?
What does FOB-origin pricing imply?
What is not a method of geographical pricing?
What is not a method of geographical pricing?
Which of the following describes zone pricing?
Which of the following describes zone pricing?
What does zone pricing entail?
What does zone pricing entail?
What is the key characteristic of dynamic pricing?
What is the key characteristic of dynamic pricing?
Which factor does not directly influence international pricing?
Which factor does not directly influence international pricing?
Under what conditions do competitors typically react to pricing changes?
Under what conditions do competitors typically react to pricing changes?
What does freight-absorption pricing involve?
What does freight-absorption pricing involve?
What is a common question asked when responding to price changes?
What is a common question asked when responding to price changes?
Which scenario is NOT likely to provoke a competitor's reaction?
Which scenario is NOT likely to provoke a competitor's reaction?
What is the primary purpose of basing-point pricing?
What is the primary purpose of basing-point pricing?
Flashcards
Price
Price
The amount of money customers pay for a product or service, encompassing all values exchanged for its benefits.
Customer-Oriented Pricing
Customer-Oriented Pricing
Pricing strategy focused on understanding the value consumers perceive in a product and setting a price to capture that value.
Value-Based Pricing
Value-Based Pricing
A pricing strategy where the price is set based on the perceived value of the product to the customer, not the seller's cost.
Good-Value Pricing
Good-Value Pricing
A value-based pricing strategy that provides a combination of quality and good service at a fair price.
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Value-Added Pricing
Value-Added Pricing
A value-based pricing strategy that adds extra features or services to a product to increase its perceived value and justify a higher price.
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Cost-Based Pricing
Cost-Based Pricing
Setting a price based on production costs, materials, labor, and desired profit margin.
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Penetration Pricing (New Product)
Penetration Pricing (New Product)
A pricing strategy where the company sets a low price for a high-quality product to attract a large number of customers and generate significant sales quickly.
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Premium Pricing (New Product)
Premium Pricing (New Product)
Setting a high price for a new product to signal its premium quality, exclusivity, and innovation.
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Everyday Low Pricing (EDLP)
Everyday Low Pricing (EDLP)
A pricing strategy that involves charging a consistent low price for products with minimal temporary discounts.
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High-Low Pricing
High-Low Pricing
A pricing strategy where prices are generally higher, but frequent promotions and temporary discounts are offered on select items.
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Fixed Costs
Fixed Costs
Costs that remain constant regardless of the production or sales level.
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Variable Costs
Variable Costs
Costs that vary directly with the level of production; they increase as production increases and decrease as production decreases.
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Total Cost
Total Cost
The total cost of production, including both fixed and variable costs for a specific production level.
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Average Cost
Average Cost
The average cost per unit of output at a given production level.
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Target Costing
Target Costing
A pricing strategy where the company starts with an ideal selling price based on customer value and then carefully manages its costs to ensure profitability at that price.
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Price-Demand Relationship
Price-Demand Relationship
Understanding how changes in price affect the quantity of goods or services customers are willing to buy.
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Price Elasticity of Demand
Price Elasticity of Demand
A measure of how sensitive demand is to changes in price. It tells you how much demand will change for every 1% change in price.
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Competitor Analysis for Pricing
Competitor Analysis for Pricing
Involves comparing your product's value, strength, and pricing strategies to those of your competitors.
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Market-Skimming Pricing
Market-Skimming Pricing
A pricing strategy where a company sets a high initial price for a new product to quickly recover development costs and capitalize on early adopters' willingness to pay.
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Market-Penetration Pricing
Market-Penetration Pricing
A pricing strategy where a company sets a low initial price for a new product to quickly penetrate the market, gain wide adoption, and discourage competition.
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Organizational Pricing Roles
Organizational Pricing Roles
Deciding who within the organization has the authority to set prices and how different individuals or teams can influence pricing decisions.
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External Factors Affecting Pricing
External Factors Affecting Pricing
Factors outside the company that can affect price decisions, such as economic conditions, government regulations, and consumer trends.
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Product Line Pricing
Product Line Pricing
A pricing strategy where companies price products within a product line, considering cost differences, customer perception of features, and competitor pricing.
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Optional-Product Pricing
Optional-Product Pricing
A pricing strategy where companies set prices for optional extras or accessories that enhance the main product.
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Captive-Product Pricing
Captive-Product Pricing
A pricing strategy where companies price products that are essential for using the main product.
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Product Bundle Pricing
Product Bundle Pricing
A pricing strategy where companies combine several products at a reduced price, offering a greater value for customers.
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By-Product Pricing
By-Product Pricing
A pricing strategy where companies sell products that are produced as by-products of the main product, often at a low price to recover costs.
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Psychological Pricing
Psychological Pricing
A pricing strategy where sellers consider the psychological impact of prices, not just the cost, and how buyers perceive value.
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Reference Prices
Reference Prices
References prices are prices that buyers keep in mind when evaluating a product's price. This could involve remembering past prices, comparing current prices, or considering the overall buying situation.
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Promotional Pricing
Promotional Pricing
Temporary price reductions below the usual price or cost to boost demand. This includes strategies like loss leaders, special event pricing, rebates, low-interest financing, extended warranties, and free maintenance.
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Risks of Promotional Pricing
Risks of Promotional Pricing
When using promotional pricing too often, customers may start only buying during promotions, leading to lower sales at regular prices and potentially triggering price wars with competitors.
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Geographic Pricing
Geographic Pricing
A set of pricing strategies for customers in different locations. This includes FOB-origin pricing, uniform delivered pricing, zone pricing, basing-point pricing, and freight-absorption pricing.
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FOB-Origin Pricing
FOB-Origin Pricing
The seller delivers the goods to the carrier, and the customer takes ownership and responsibility for the goods from that point on.
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Uniform Delivered Pricing
Uniform Delivered Pricing
The company charges the same price plus freight to all customers, regardless of their location.
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Zone pricing
Zone pricing
A pricing strategy where prices are set differently across geographic zones, with customers in each zone paying a single total price.
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Basing-point pricing
Basing-point pricing
A pricing strategy where a seller designates a specific city as a basing point and charges all customers the freight cost from that city to their location.
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Freight-absorption pricing
Freight-absorption pricing
A pricing strategy where a seller absorbs all or part of the actual freight cost to attract customers in competitive markets.
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Dynamic pricing
Dynamic pricing
A pricing strategy where prices are constantly adjusted based on individual customer characteristics, purchase situations, and market conditions.
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International pricing
International pricing
A pricing strategy with country-specific prices influenced by economic conditions, competition, local laws, infrastructure, and company marketing objectives.
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Competitor reactions to price changes
Competitor reactions to price changes
Analyzing competitor price changes to understand their motivations, market impact, and potential for future adjustments.
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Responding to price changes
Responding to price changes
Evaluating the reasons, duration, market impact, and expected responses when a competitor alters their prices.
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Questions to consider when responding to price changes
Questions to consider when responding to price changes
Understanding why a competitor changed their price, whether it's permanent or temporary, how it affects market share and profits, and if other competitors will follow suit.
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Chapter 10: Pricing
- Pricing is the amount of money charged for a product or service
- It's the sum of all values that consumers give up
- The only element in the marketing mix that produces revenue
- All other elements represent costs
Chapter Learning Outcomes
- What is a price?
- Customer perceptions of value
- Company and product costs
- Other internal and external considerations affecting price decisions
- New product pricing strategies
- Product mix pricing strategies
- Price-adjustment strategies
- Price changes
What Is a Price?
- Price is the amount of money charged for a product or service
- It represents the sum of all values that consumers give up
- to gain the benefits of having or using the product or service
- The only element in the marketing mix that produces revenue
- Unlike other marketing mix elements, price is not just a cost; it is also a driver of revenue
Factors to Consider When Setting Prices
- Customer perceptions of value (price ceiling, no demand above this price)
- Internal and external considerations (marketing strategy, objectives, nature of the market, competitors strategies and prices)
- Product costs (price floor, no profits below this price)
Customer Perceptions of Value
- Customer-oriented pricing: understanding how much value consumers place on product benefits, setting a price capturing that value
- Value-based pricing: uses buyers' perceptions of value, not seller's cost, as the key
- Types: Good-Value Pricing, Value-Added Pricing
- Cost-based pricing: product driven
Value-Based Pricing
- Value-based pricing uses the buyers' perceptions of value, not the sellers' cost, as the key
- Price is considered before the marketing program is set
- Value-based pricing is customer driven
- Types of value-based pricing: Good-Value Pricing, Value-Added Pricing
- Cost-based pricing is product driven
Customer Perceptions of Value
- Good-value pricing: offering right combination of quality and good service to a fair price
- Value-added pricing: attaching value-added features/services to differentiate offers, support higher prices, and build pricing power
Customer Perceptions of Value
- Everyday low pricing (EDLP): charging a constant every-day low price with few or no temporary discounts.
- High-low pricing: charging higher prices on an everyday basis, with frequent promotions to lower prices temporarily on selected items
Value-Added Pricing
- Unique restaurants
- Brand-name drugs
- Trendy fashions
- Sports equipment
- High-quality food
- Pricing power: ability to escape price competition and justify higher prices/margins without losing market share
Company and Product Costs
- Cost-based pricing: involves setting prices based on the costs of producing, distributing, and selling a product, plus a fair rate of return for effort and risk
- Adds a standard markup to the cost of the product
Types of Costs
- Fixed costs: do not vary with production or sales levels (Rent, Heat, Interest, Executive salaries)
- Variable costs: vary with the level of production (Packaging, Raw materials)
- Total costs: sum of fixed and variable costs
- Average cost: cost associated with a given level of output
Other Internal and External Considerations Affecting Price Decisions
- Customer perceptions of value: set the upper limit for prices
- Costs: set the lower limit
- Companies must consider internal and external factors when setting prices
- Overall Marketing Strategy, Objectives, and Mix
- Target costing: starts with an ideal selling price based on consumer value considerations and then targets costs that will ensure that the price is met
- Organizational considerations: Who should set the price? Who can influence prices?
- The Market and Demand
Other Internal and External Considerations Affecting Price Decisions
- Before setting prices, marketers must understand the relationship between price and demand for their products.
- Pricing in Different Types of Markets
- Analyzing the Price-Demand Relationship
- Price Elasticity of Demand
- Competitors' Strategies and Prices: Comparison of offering in terms of customer value; Strength of competitors; Competition pricing strategies; Customer price sensitivity
- Other External Factors: Economic conditions; Reseller's response to price; Government; Social concerns
New-Product Pricing Strategies
- Market Skimming Pricing: high initial prices to skim revenue from the market.
- Product quality and image must support the price.
- Buyers must want the product at the price.
- Costs of producing the product in small volume should not cancel the advantage of higher prices.
- Competitors should not enter the market easily.
New-Product Pricing Strategies
- Market Penetration Pricing: low initial price to penetrate the market quickly and attract a large number of buyers quickly to gain market share.
- Price sensitive market.
- Inverse relationship of production and distribution cost to sales growth.
- Low prices must keep competition out of the market
Product Mix Pricing Strategies
- Product line pricing
- Optional-product pricing
- Captive-product pricing
- Product bundle pricing
- By-product pricing
Price-Adjustment Strategies
- Discount and allowance pricing
- Segmented pricing
- Psychological pricing
- Promotional pricing
- Geographic pricing
- Dynamic pricing
- International pricing
Price Changes
- Initiating Pricing Changes: Price cuts (excess capacity, increasing market share); Price Increases (cost inflation, increased demand, lack of supply)
- Buyer Reactions to Pricing Changes: price increases (product is "hot," company greed); price cuts (new models available, models not selling well, quality issues)
- Competitor Reactions to Pricing Changes
- Responding to Price Changes: Reduce price to match competition; Maintain price but raise the perceived value; Improve quality and increase price; Launch a lower-price "fighting" brand
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