29 Questions
What is the definition of price?
The amount of money charged for a product or service
Which element in the marketing mix produces revenue ?
Price
What are the three major pricing strategies ?
Customer value–based pricing, cost-based pricing, and competition-based pricing
What happens if customers perceive a product's price to be greater than its value ?
They won't buy the product
What is the right pricing strategy ?
The one that delivers both value to the customer and profits to the company
What does customer value-based pricing consider?
Buyers’ perceptions of value
What are the types of value-based pricing mentioned?
Good-value pricing and value-added pricing
What does good-value pricing offer?
Quality and good service at a fair price
What does value-added pricing do to differentiate and charge higher prices?
Adds features and services
What does cost-based pricing involve setting prices based on?
Production, distribution, and selling costs plus a fair rate of return
What must pricing decisions be coordinated with?
Product design, distribution, and promotion decisions
What are the potential reactions of a competitor to a company's price cut?
Interpret the price cut as an attempt to grab a larger market share or as a sign of poor performance
What are the potential responses of a company to a competitor's price cut that is likely to harm its sales and profits?
Reduce its price to match the competitor’s price
What could be a strategic move for a company to improve its position in response to a competitor's price cut?
Improve quality and increase price, moving its brand into a higher price– value position
What is a potential action a company might take if a competitor's price cut is likely to harm its sales and profits, and the company does not want to reduce its own price?
Launch a low-price fighter brand—adding a lower-price item to the line or creating a separate lower-price brand
What could be a potential consequence for a company if it does not consider the reactions of its competitors to its price change?
Its competitors may interpret the price change negatively, affecting the company's sales and profits
What is optional-product pricing?
Setting a price for optional or accessory products with a main product
When is captive-product pricing used?
When a price for products must be used with a main product
What does by-product pricing involve?
Setting a price for by-products to make the main product more competitive
What does product bundle pricing involve?
Combining products and offering them at a reduced price
When is dynamic pricing used?
Adjusting prices continually to meet individual customer needs
What are the reasons for price increases according to the text?
Cost inflation and over-demand, with a need to avoid perception as price gouging
What is target costing?
A technique used by firms to start with an ideal selling price and target costs to meet the price
What is market-penetration pricing?
Setting a low price for a new product to attract a large market share
What does price elasticity measure?
The sensitivity of demand to changes in price
When does market-skimming pricing work effectively?
When product quality and image support the higher price, and competitors cannot easily undercut the high price
What is the impact of economic conditions on pricing strategies?
Economic conditions like boom or recession, inflation, and interest rates impact pricing strategies
Who sets prices in large companies?
Divisional or product managers
What is customer value based pricing?
Based on buyers’ perceptions of value rather than on the seller’s cost
Study Notes
Pricing Strategies and Considerations
- Target costing is a technique used by firms to support price-positioning strategies, starting with an ideal selling price and targeting costs to meet the price.
- Some companies emphasize nonprice positions by using other marketing mix tools, rather than focusing on price.
- Luxury smartphone maker, Vertu, places high value in its products and charges premium prices to match that value.
- Management decisions on who should set prices vary by company size and type. Small companies often have top management setting prices, while large companies rely on divisional or product managers. Industries with price as a key factor may have pricing departments reporting to top management or the marketing department.
- Price elasticity measures the sensitivity of demand to changes in price, with inelastic demand showing minimal change and elastic demand showing significant change.
- Economic conditions such as boom or recession, inflation, and interest rates impact pricing strategies. Post-recession consumer frugality has led to responses like price cuts, offering discounts, developing more affordable items, and redefining value propositions.
- External factors like resellers, government, and social concerns must be considered when setting prices to understand their impact on other parties and broader societal considerations.
- New product pricing strategies include market-skimming pricing, where a high price is set to maximize revenues, and market-penetration pricing, where a low price is set to attract a large market share.
- Market-skimming pricing works under certain conditions, such as product quality and image supporting the higher price, and the inability of competitors to easily undercut the high price.
- Market-penetration pricing aims to attract a large number of buyers and a large market share by setting a low price for a new product, resulting in falling costs and potential for further price cuts.
- Several conditions must be met for the market-penetration pricing strategy to work effectively.
- Pricing decisions are influenced by a variety of factors, including the firm's size, type, industry, economic conditions, and external environmental factors.
Test your knowledge of pricing strategies and considerations with this quiz. Explore topics such as target costing, nonprice positioning, price elasticity, economic conditions, new product pricing strategies, and factors influencing pricing decisions. Brush up on key concepts and factors that impact pricing strategies in various business environments.
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