Chapter 9
Classic demand curve
As costs goes up, demand goes down
Value-added pricing
Attaching value-added features and services to differentiate a company's offers and charging higher prices
Everyday low pricing (EDLP)
EDLP involves charging a constant, everyday low price with few or no temporary price discounts - ex. Costco
Least likely to be a consideration when setting price for a product
Frequency of advertising
CFO - Price skimming
Large organisation are eager to adopt new versions because of improved enterprise functions
Fighter brand
Lower price product or brand used to improve market share in a market that is highly price sensitive
Market Penetration
Market Penetration pricing strategy - selling products for significantly less than the compeition
Customer Value-based Pricing
Setting price based on buyers perceptions of value rather than on the seller's cost
Break even pricing (target return pricing)
Setting price to break even on the costs of making and marketing a product, or setting a price to make a target return
Captive product pricing
Setting prices for products that must be sold along with the main product
Break-even chart
Shows the total cost and total revenue expected at different sales volume levels
Tech Company creating OS; CEO - market penetration pricing to gain market share
Significant economies of scale
Monopolistic competition
The market consists of many buyers and sellers who trade over a range of prices rather than a single market price
Dynamic pricing
adjusting prices continually to meet the characteristics and needs of individual customer and situations
Discount and allowance pricing
involves reducing prices to reward customer responses or reducing prices to promote the product
Market Penetration pricing
is the act of setting a low initial price to attract buyers quickly with the goal of winning a large market share
Uniform-delivered pricing
is the practice of charging the same price plus freight to all customers, regardless of location
Reduced its prices and consumers are flocking to its doors, new lower priced line with tag line high fashion low price
lauching a fighter brand
Price discrimination
not honest pricing with its retailers, Although all of its retailers cater to the same market, the company regularly charges one group of retailers more for its products than other similar groups.
Value-based pricing
1. Assess customer needs and value perceptions 2. Set target price to match customer perceived value 3. Determine costs that can be incurred 4. Design product to deliver desired value at target price
Cost based pricing
1. Design a good product 2. Determine product costs 3. Set price based on cost 4. Convince buyers of product's value
Costs plus pricing (markup pricing)
Adding a standard markup to the cost of the product
High-low pricing
Charging higher prices on an everyday basis but running frequent promotions to lower prices temporarily on selected items
Fixed Costs
Costs that do not vary with production or sales level
Variable costs
Costs that vary directly with the level of production
Biggest problem when confronting predatory pricing
Intent
Least likely to be used to increase product sales in a particular market
Introducing a fighter brand
Good-value pricing
Offering just the right combination of quality and good service at a fair price
Predatory pricing
Practice of selling below cost with the intention of punishing a competitor or gaining higher long-run profits by putting competitors out of business
Optional product pricing
Practice of setting a price for optimal or acessory products along with the main product
By product pricing
Practice of setting prices for the by-products of a product's production to make the main product's price more attractive
If prices fall too much or rise
Price elasticity
Target costing
Pricing that starts with an ideal selling price and then targets costs that will ensure that the price is met
Runs a white wheat farm in eastern oregon, does not spend much time on marketing strategy because advertising pay a little role in demand
Pure competition
Price gouging
Rasing prices in order to exploit consumers
Market skimming
Sell the product as high as possible then slowly lower the price - works on products that have competitive advantage a
Price
The amount of money charged for a product or service, or the sum of the values that customers exchange for the benefits of having or using the product or service
Total costs
The sum of the fixed and variable costs for any given level of production
Product line pricing
setting price steps between various product line based on cost differences between the products, customer evaluations of different features and competitors prices
Customer value based pricing
uses buyer's perception of value as the key to pricing Gourmet wanted to serve quality food to his customers but at prices that were considered reasonable by the general public- surveyed his target market in his area to determine what price was reasonable for a gourmet meal - best quality food for the price he was quoted