Chapter 10- Marketing
Why is "cost leadership" extremely important when competing in business?
Cost leadership is so important in business because a businesses core cost advantages translate directly to an edge over their competitors based on much more flexibility in their pricing strategies as well as their ability to translate some of the cost savings to the bottom line.
What is the difference between EDLP and high/low pricing?
Everyday low price is a strategy to reduce investment in promotion and transfer part of the savings to low price. They rely on generating buzz in the market about the EDLP to create and maintain customer traffic and sales volume. High/low pricing - firms rely on periodic heavy promotional pricing, primarily communicated through advertising and sales promotion, to build traffic and sales volume.
What is competitor based pricing and why is it often used to determine a price?
Objective: Benchmark the competition. This approach is when marketing managers decide to price at some market average price, or perhaps above or below it in the context of penetration or skimming objectives.
Many brands use "Prestige" pricing tactics? What psychology is used and how does it work?
Prestige pricing is lending prestige to a product or brand by virtue of a price relatively higher than the competition. Prestige pricing plays on psychological principles that attach quality attributions to higher-priced goods. This pricing strategy does not follow tradition price / demand curves. prestige pricing makes the customer buying the product believe that what they are buying is only available to an elite class. It is sold at a higher price, which makes the product have a higher perceived quality.
Financial executives often favor "profit maximization and Target ROI? Why is it dangerous to a company to let the financial team pick the pricing strategy and not the marketing execs?
The objective of Target ROI is profit maximization. This strategy is where a bottom line profit is established first and then pricing is set to achieve the target. This does not take into account the short and long-term impacts of the pricing strategy on other important market and customer-related elements of success, and the product becomes strategically vulnerable.
Name four or five legal considerations in pricing?
-Price-fixing: when companies collude to set prices at a mutually beneficial high level. -Price discrimination: occurs when a seller offers different prices to different customers without a substantive basis, such that competition is reduced. -Deceptive pricing: knowingly stating prices in a manner that gives a false impression to customers (aka bait & switch) -Predatory Pricing: a strategy to intentionally sell below cost to push a competitor out of a market, then raise prices to new highs. Difficult to prove. -Fair trade laws: These no longer exist. Allowed manufacturers to establish artificially high prices by limiting the ability of wholesalers and retailers to offer reduced or discounted prices. -Minimum markup laws: These no longer exist. Required a certain percentage markup to be applied to products.
Describe how Captive pricing and two part pricing are tactics designed to keep customers?
Captive pricing (complementary pricing) entails gaining a commitment from customer to a basic product or system that requires continual purchase of peripherals to operate. In the service sector, this is often called two part pricing. Firms that charge monthly fees and then charge for specific services would fall under this category. This is designed to keep customers because companies know that customers will go back and buy the products needed to keep their initial purchase running as long as they are happy.
What ways are discounts passed on to a customer?
Cash discounts - elicit quicker payment of invoices Trade discounts - provide an incentive to a channel member for performing some function in the channel that benefits the seller. Quantity discounts - taken off an invoice price based on different levels of product purchased. Seasonal discounts - reward the purchaser for shifting part of the inventory storage function away from the manufacturer Promotional Allowances - manufacturer will give a check back to the retailer in response to them running an ad for them. Georgrapic Aspects of Pricing- FOB pricing free on board. a variety of geographically driven pricing options.
If one practices "Penetration Pricing" what strategies will a company execute?
Penetration pricing is when a firm starts their product at low prices (either to effectively enter a new market, deter competitors from entering a market, or to gain market share), and then slowly creep up their prices over time. The objective of penetration pricing is market share maximization. In markets wehre customers are sensitive to price and where internal efficiencies lead to cost advatntates allowing for acceptivle markines even with aggressive pricing , a penetration objective can create a powerful barrier to market for other firms, this protecting market share.
Price bundling and unbundling are tactics used by many sales team. Why and what are the advantages?
Price bundling is when companies offer deals in order to purchase more products. This often causes customers to spend more money than they otherwise would have on services/products that they don't necessarily want or need. And oftentimes, these extras bring in higher margins for the company. Disadvantages: In unregulated industries, it can become unclear what the unbundled price is, as firms will sometimes set artificially high prices in order to force consumers into buying the bundled products. Also, there are some ethical issues with price bundling (car industry -- making it extremely hard to buy a car without all the extras).
Why are price changes tough to execute? What is a "price war"
Price changes can be tough to execute because customers will often notice right away -- a change in price can drastically affect demand. A price war is when firms engage in trying to outdo one another for the lowest price.
What is the good news and bad about price skimming?
Price skimming is a strategy in which enter the market at the highest possible initial price. Price skimming is when you start out with a really high price for your product and then slowly creep it downwards as more and more consumers buy it. Good news is that it can establish your product as prestigious, and can be appropriate within a niche strategy. Bad news is that in can be inappropriate when a product is trying to differentiate itself within the larger market.
The first step in pricing decisions is to establish your objectives. How do pricing decisions effect the perception of the overall value of an offering?
Pricing objectives are the desired or expected result associated with a pricing strategy. Pricing decisions will affect the product's position, branding, and financial objectives. Customers will have a distinct perception of the product because of its pricing -- is it high quality or low quality, high value or low value?
What does an examination of the prices of "Sprecher Gourmet Soda" say about pricing strategy?
Pricing strategy depends on usage, utility, location, needs state, and want state. Sprechers Soda uses the prestige pricing tactic. Higher quality higher price. Pricing= your brand.
Ritchie Brothers is based on a "auction" style? How do they get the best price in their offerings?
Ritchie Brothers get the best price in their offerings by using various tactics to enhance a sale: they give each product tune-ups and a paint job, they list photos and descriptions online to get customers excited, they only have a few sales a year (and in auction form) to increase the customer's sense of urgency. The Richie brothers' business is based on a auction style. It has about 6 auctions a year at each location. This method of selling benefits it because it causes the items to be sold for a higher price than they normally would because of its method of selling. It realizes that anyone that comes to its sales needs an item for their industry/current project so they are willing to pay the top dollar in order to get their piece of machinery over another buyer.
How does the Quick Service Restaurant industry (Taco Bell) use Pricing as a competitive weapon?
They use pricing as a competitive weapon by taking part in value pricing. They knew that it wasn't just price that was important to consumers, but how much food they got for their price. So instead of raising prices, they did everything they could to fit the most food that was extremely filling into their low price point. This was very popular with consumers.
What is "Product Line" Pricing and how is it used?
This is when marketing managers develop a rational pricing strategy across a complete line of related items. Various price points help communicate the differences in benefits within a product line.
How are the strategies of value pricing implemented? Are they more valid? Accurate? Fairer?
Value pricing attempts to consider the role of price as it reflects the bundle of benefits sought by the consumer. Pricing decisions are strongly driven by the sources of differential advantage a product can realistically deliver. A marketing manager tries to ensure that the offering meets or exceeds the customer's expectations. If the strategy is done right, customers may perceive them to be more accurate and more fair. However, if a company promises a certain value and does not deliver, this is the quickest was to alienate customers.
