Questions and Answers
What is the first step in price planning?
What is the formula for estimating demand?
Number of potential buyers + average amount of purchases per customer + likely market share
Which of the following factors should be considered when evaluating the pricing environment?
What is break-even analysis?
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What is a simple and low-risk pricing strategy based on?
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List the two methods used for cost-based pricing strategy.
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Which pricing strategy focuses on maximizing revenue by setting different prices for different customers?
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What is the goal of value-pricing?
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Which pricing strategy involves setting a very high price for high demand products?
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What is one tactic for pricing individual products?
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Price bundling is when __ goods are packaged together.
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What is captive pricing?
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Study Notes
Steps in Price Planning
- Develop pricing objectives: Consider sales, market share, profit, competitive effects, customer satisfaction, and image enhancement.
- Estimate demand using the demand curve: Evaluate potential buyers, average purchase amounts, and expected market share.
- Determine costs: Differentiate between variable and fixed costs; utilize break-even and marginal analyses to understand cost coverage.
- Evaluate the pricing environment: Analyze external factors such as economic conditions, competition type, and consumer trends.
- Choose a pricing strategy: Options include cost-based, demand-based, competition-based, customer-needs-based, or new-product pricing.
- Develop pricing tactics: Create strategies for pricing single products or multiple products.
Develop Pricing Objectives
- Objectives impact overall strategy and must balance sales goals, profits, competitive positioning, and customer perceptions.
Estimate Demand
- Demand estimation involves analyzing the number of buyers, average purchase volume, and anticipated market share.
Determine Costs
- Consider both variable and fixed costs; conduct break-even analysis to identify necessary sales volumes to cover costs.
Evaluate Pricing Environment
- Economic factors include growth, consumer confidence, and inflation. Consider competitive market structures like oligopoly or pure competition, as well as consumer demographics.
Choose Pricing Strategy
- Select strategies based on costs, demand, competition, customer needs, or specific new-product scenarios.
Choose Pricing Strategy: Based on Costs
- A cost-based strategy is straightforward and low-risk, ensuring that all costs are covered but may not align with market demand or competitive prices.
Choose Pricing Strategy: Based on Demand
- Target-costing aims for market price alignment, while yield management sets varied prices for different customers to maximize revenue.
Choose Pricing Strategy: Based on Competition
- Pricing can be set above, at, or below competitors, dependent on product quality or brand perception.
Choose Pricing Strategy: Based on Customer Needs
- Focus on developing long-term customer relationships through value-pricing or everyday low pricing (EDLP).
Choose Pricing Strategy: New-Product Pricing
- New products can follow skimming (high initial price), penetration (low price to gain market share), or trial pricing (low for a limited period).
Develop Pricing Tactics
- Create pricing strategies for both single products and bundles of multiple products.
Develop Pricing Tactics: Pricing for Individual Products
- Consider two-part pricing models or payment pricing structures, like monthly fees plus additional charges.
Develop Pricing Tactics: Pricing for Multiple Products
- Implement price bundling (packages of goods) or captive pricing (low initial price for one product requiring a complementary purchase).
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Description
This quiz covers essential steps in price planning, including developing pricing objectives, estimating demand, assessing costs, and choosing pricing strategies. Understand how to evaluate the pricing environment and implement effective pricing tactics for products.
