Marketing Ch. 7 Price

what must be present in market penetration pricing

1. the market must be highly price sensitive so that a low price produces more market growth. 2. production and distribution costs must decrease as sales volume increases. 3. The low price must help keep out the competition, and the penetration pricer must maintain its low-price position.

What must be present in market skimming pricing

1. the product's quality and image must support its higher price, and enough buyers must want the product at that price 2. the costs of producing a smaller volume cannot be so high that they cancel the advantage of charging more 3. competitors should not be able to enter the market easily and undercut the high price

elastic

if demand changes greatly with a change in price

inelastic

if demand hardly changes with a small change in price

market skimming pricing

inventing new products then setting high initial prices to get more revenue layer by layer

what is wrong with break even pricing

it fails to consider customer value and the relationship between price and demand

without scanner data

without this managers can't see any meaningful fluctuations in sales to customers

cost plus pricing

(markup pricing) adding a standard markup to the cost to the product

break even pricing

(target return pricing) firm tries to determine the price at which it will break even or make the target return it is seeking

What sets ceiling for prices?

Consumers' perceptions of the product's value

dynamic pricing

adjusting prices continually to meet the characteristics and needs of individual customers and situations- legal as long as the companies do not discriminate based on age, sex, location, or other similar characteristics

First step in value-based pricing

analyzing consumer needs and value perceptions, and the price is set to match perceived value

value added pricing

attach features and services to differentiate their offers and thus support their higher prices

high low pricing

charging higher prices on an everyday basis but running frequent promotions to lower prices temporarily on selected items.

captive product pricing

companies that make products that must be used along with a main product are using- often price them low and set high markups on the supplies

Steps of cost-based pricing

company designs what it considers to be a good product, adds up the costs of making the product, and sets a price that covers costs plus the target profit

EDLP

everyday low pricing; involves charging a constant, everyday low price few or no temporary price discounts

product line pricing

management must determine the price steps to set between the various products in a line

good-value pricing

offering the right combo of quality and good service at a fair price

optional product pricing

offering to sell optional or accessory products along with the main product

reference prices

prices that buyers carry in their minds and refer to when looking at a given price

What sets price floor?

product costs

psychological pricing

sellers consider the psychology of prices, not simply the economics

product bundle pricing

sellers often combine several products and offer the bundle at a reduced price- can promote sales of product consumers might not otherwise buy

market penetration pricing

set a low initial price to enter the market quickly and deeply which attracts a large number of buyers quickly and win a large market share. Leads to high sales and falling costs

competition based pricing

setting prices based on competitor's strategies, costs, prices, and market offerings. consumers will base their judgments of a product's value on the prices that competitors charge for similar products

cost based pricing

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

scanner data

shows real time affect of price promotions

promotional pricing

temporarily pricing products below list price to create excitement and urgency- but too much can erode brand's value

segmented pricing

the company sells a product or service at two or more prices, even though the difference in prices is not based on differences in costs

price is what?

the only element in marketing mix that produces revenue

Customer-oriented pricing

understanding how much value consumers place on the benefits they receive from the product and setting a price that captures that value

customer value-based pricing

uses buyers' perceptions of value as the key to pricing-cannot design a product and marketing program and then set the price.

What should companies sell?

value