Marketing ch 10-11

Price: Internal Factors

Pricing Objectives; Marketing Mix strategies; Other products; Costs

Stage in Product Life Cycle

brand new products are expensive; mature products are cheaper

Product bundle Pricing

group products, may not be cheaper

Price elasticity

inelastic - price doesn't effect demand (prestige) elastic - demand drops as price increases

Price-fixing

must prove collusion

Break-even Analysis

profit = 0; Q = FC / P-VC

Consumer tastes

shifts demand curve if great product or trendy

International

transportation, tariffs, median income

Price elasticity

A measure of the sensitivity of demand to changes in price.

Psychological pricing

A pricing approach that considers the psychology of prices and not simply the economics; the price is used to say something about the product.

Discount

A straight reduction in price on purchases during a stated period of time.

Price discrimination

Customer - student, seasonal; Product form - change image/packaging, package with other desirable items; Location - seat in stadium, hotel rooms with view; Time - parking pre-sale, matinee

Price Demand Relationship

Demand curves; Price elasticity

Price Adjustment Strategies

Discount / Allowance; Segmented; Psychological; Promotional; Geographic; International

Competition-based methods

Going rate - competitors; Loss-leader -- designed to get customers into store; Sealed-bid -- don't know competition price

New Product Pricing Strategies

Market Skimming pricing - price high to get rich/innovators, slowly lower to maximize each stage; Market Penetration pricing - price low to generate sales in order to benefit from economies of scale (must be elastic product)

Good-value pricing

Offering just the right combination of quality and good service at a fair price.

Marketing Mix strategies

Price must match quality, customer expectation

Legal aspects

Price-fixing; Price discrimination; Deceptive; Predatory

Reference prices

Prices that buyers carry in their minds and refer to when they look at a given product.

Target costing

Pricing that starts with an ideal selling price, then targets costs that will ensure that the price is met.

Product Mix Pricing Strategies

Product Line pricing; Optional-Product Pricing; Captive Product Pricing; Product bundle Pricing

Allowance

Promotional money paid by manufacturers to retailers in return for an agreement to feature the manufacture products in some way.

Segmented pricing

Selling a product or service at two or more prices, where the difference in prices is not based on differences in costs.

Market-skimming pricing

Setting a high price for a new product to skim maximum revenues layer by layer from the segments willing to pay the high price; the company makes fewer but more profitable sales.

Captive-product pricing

Setting a price for products that must be used along with a main product, such as blades for a razor and film for a camera.

Promotional pricing

Temporarily pricing products below the list price, and sometimes even below cost, to increase short-run sales.

Experience curve (learning curve)

The drop in the average per-unit production cost that comes 4jth accumulated production experience.

Optional-product pricing

The pricing of optional or accessory products along with a main product.

Pricing Objectives

What does the company want to achieve? Profit maximization; Sales; Market share leadership (common); Unit volume; Survival (keep in business); Decrease demand (peak/off-season); Social responsibility (rare drugs)

Substitute products

alternatives limit ability to shift curve, may even lower it

Deceptive

bait & switch; inflating price before 2for1; comparable value must be legit

monopolistic competition

company captures niche market and acts like mini-monopoly; prices based on prestige

Consumer income

convince higher income groups to buy

Estimating Demand and Revenue

curve plotted with intent of showing demand at different price points

Segmented

different customer segments

oligopoly

few companies control majority of market; tobacco, beer

Value-Based Pricing

price and quality must satisfy customer; B2B - sell products that reduce costs

Geographic

shipping, tax

Demand curve

A curve that shows the number of units the market will buy in a given time period, at different prices that might be charged.

FOB-origin pricing

A geographical pricing strategy in which goods are placed free on board a carrier; the customer pays the freight from the factory to the destination.

Uniform-delivered pricing

A geographical pricing strategy in which the company charges the same price plus freight to all customers, regardless of their location.

Zone pricing

A geographical pricing strategy in which the company sets up two or more zones. All customers within a zone pay the same total price; the more distant the zone, the higher the price.

Freight-absorption pricing

A geographical pricing strategy in which the seller absorbs all or part of the freight charges in order to get the desired business.

Basing-point pricing

A geographical pricing strategy in which the seller designates some city as a basing point and charges all customers the freight cost from that city to the customer.

Cost-plus pricing

Adding a standard markup to the cost of the product.

Dynamic pricing

Adjusting prices continually to meet the characteristics and needs of individual customers and situations.

Value-added pricing

Attaching value-added features and services to differentiate a company's offers and charging higher prices.

Product bundle pricing

Combining several products and offering the bundle at a reduced price.

External Factors

Competitive market; Consumers perceptions; Stage in PLC; Competitors' prices; Demand

Select an Appropriate Price Level

Cost-based methods; Break-even Analysis; Value-Based Pricing; Competition-based methods

Costs

Costs of producing; Cost of changing price (stamps, catalogue); Learning curve (where in product life cycle); Economies of scale; Total Revenue =P*Q Total Cost (TC = (VC*Q) + FC Fixed cost (FC) Variable Cost (VC); Profit = Total Revenue-Total Cost;

Fixed costs

Costs that do not vary with production or sales level.

Variable costs

Costs that vary directly with the level of production.

Market-penetration pricing

Setting a low price for a new product in order to attract a large number of buyers and a large market share.

By-product pricing

Setting a price for by-products in order to make the main-product's price more competitive.

Value-based pricing

Setting price based or buyers' perceptions of value rather than on the seller's cost.

Break-even pricing (target profit pricing)

Setting price to break ever' on the costs of making and marketing a products or setting price to make a target profit.

Cost-based pricing

Setting prices based on the costs for producing, distributing, and selling the product plus a fair rate of return for effort and risk.

Geographical pricing

Setting prices for customers located in different parts of the country or world.

Product line pricing

Setting the price steps between various products in a product line based on cost differences between the products, customer evaluations of different features, and competitors' prices.

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.

Other products

differentiate from other products on the market

Discount / Allowance

discount (cash, student, ladies-night); allowance (trade-in)

Predatory

lower prices to drive competition out of business, then raise prices.

markup chain

manufacturer - wholesaler - retailer - customer; manufacturer price is wholesaler cost; wholesaler price is retailer cost;

standard markup

markup = price - cost; % = markup/price; price = cost/1-%; might round price up to make it more acceptable to consumer

Demand curves

most goods - straight line, higher price, lower quantity; prestige goods - curved line, low quantity at high & low prices, highest quantity and middle price

Optional-Product Pricing

negotiate price

pure competition

no differentiation between products (commodities); price set by supply and demand

Psychological

price at 99 cents; prestige pricing

Product Line pricing

price must be enough different to get customer to notice otherwise won't buy cheaper line

Consumers perceptions

prices are high if customers really like product; balance based on quality and value

Competitors' prices

prices limited by prices of similar products

Competitive market

pure monopoly; oligopoly; monopolistic competition; pure competition

Promotional

put on sale below normal price

pure monopoly

regulated: utilities, price set by government; non-regulated: baseball, price limited by consumer

Captive Product Pricing

sales to customers that don't have choice: theater, amusement park

Demand (shifts in demand curve)

seek to shift curve allow increased prices and sales; based on Consumer tastes; Substitute products; Consumer income

Cost-based methods

standard markup; markup chain