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