Pricing Strategy Steps

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Questions and Answers

What is the first step in price planning?

  • Estimate demand
  • Choose a pricing strategy
  • Determine costs
  • Develop pricing objectives (correct)

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?

  • Economy
  • Consumer trends
  • Competition
  • All of the above (correct)

What is break-even analysis?

<p>The number of units that must be sold in order to cover total costs.</p> Signup and view all the answers

What is a simple and low-risk pricing strategy based on?

<p>Costs (B)</p> Signup and view all the answers

List the two methods used for cost-based pricing strategy.

<p>Cost-plus pricing and mark-up pricing</p> Signup and view all the answers

Which pricing strategy focuses on maximizing revenue by setting different prices for different customers?

<p>Yield management (C)</p> Signup and view all the answers

What is the goal of value-pricing?

<p>To retain long-term customers by promising ultimate value.</p> Signup and view all the answers

Which pricing strategy involves setting a very high price for high demand products?

<p>Skimming pricing (C)</p> Signup and view all the answers

What is one tactic for pricing individual products?

<p>Two-part pricing or payment pricing.</p> Signup and view all the answers

Price bundling is when __ goods are packaged together.

<p>two or more</p> Signup and view all the answers

What is captive pricing?

<p>Two products that must be purchased together, where the first product is priced low.</p> Signup and view all the answers

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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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