Chapter 7- Pricing

dynamic pricing

- Adjusting prices to continuously meet the characteristics and needs of individual customers and situations. adjust price to demand

inelastic

- demand hardly changes with a small change in price

price skimming and market penetration

2 new product pricing strategies

product line optional product captive product product bundling

4 parts of product mix pricing

customer value based pricing

Asses customer needs and value perceptions --> sets its target price based on perceived value -->determine costs to be incurred-->design product to deliver desired value at target price.

cost based pricing

Design a Good Product → Determine Product Costs → Set Price Based on Cost → Convincing buyers of product's value

decrease, increase

If demand is inelastic, a price increase will ______ sales slightly, and increase revenues.

early stages of the product life cycle

In penetration pricing, lower prices encourages demand and sales in the ________________________

captive product pricing

Low entry price, margin on repeat purchase.

floor

Product costs set ___ for prices

market skimming

Start high, end lower. Think Technology: Ex- apple Iphone

because higher and lower prices create value for customers.

Why is pricing an exptremely important element of the mix?

Cost plus pricing (mark up pricing)

adding a standard markup to the cost of the product.

price

amount of money charged for a product or service; the sum of the values that customers exchange for benefits of having or using the product or service

elasticity

demand changes greatly with a change in price.

penetration

discourages competitors from entering the market pioneer branding.

perfectly elastic

elastic where any very small change in price results in a very large change in the quantity demanded. Mostly "pure commodities"

relatively elastic

elastic where small change in price cause large changes in quantity demanded. (result of formula is >1). Ex: beef

=or< >

exchange happens when price is ____________ perceived value and when price is ___________ price floor.

industry, economy, demand, elasticity, influencers

factors that affect pricing

is to optimize profits on the product line, not the individual product.

goal of product line pricing

increase, increase

if demand is elastic, a price increase will _____ sales and _____ revenues

decrease, decrease

if demand is elastic, a price increase will _______ sales and _______ revenues

Increase, decrease

if demand is inelastic, a price decrease will _______ sales slightly, and _____ revenues

relatively inelastic

inelastic where large changes in price cause small changes in demand (number is less than 1). Ex: gasoline. Stronger brands tend to be more inelastic

pricing

key to creating and capturing customer value

penetration

new product is introduced at lower price

ceilings

o Consumer perceptions of the products value set the _____ for prices.

penetration

o Market must be highly price sensitive o Production and distribution costs must be low enough to experience economies of scale o Penetrating firms must maintain low price position - I.e. as done by IKEA

skimming

o Quality and image must support the initial high price (some set of consumers must find value even at initially high prices) o cost of producing a smaller initial volume cannot be so high as to cancel out the initial set of extra revenues o must be barriers to entry to prevent competitors from undercutting prices o Must be a product which there are several customer segments with different levels price sensitivity (i.e. skimming is much easier with technology based items than with commodity like items)

dynamic pricing

o adjusting prices continually to meet the characteristics and needs of individual customers and situations. ♣ Adjust price to demand: stocks, airlines, hotels, football tickets.

segmented

o selling a product or service at two or more prices, where the difference in prices is not based on differences in costs. Ex: Evian water. ♣ Adjusting prices to allow for differences in customers, products, or location, time.

product line pricing

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

promotional

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

customer perceived value, as well as economic factors including elasticity.

pricing should be based on ...

price skimming

produces benefits that customers want at any cost little change that competitors can enter market quickly several customer segments with different levels of price sensitivity.

discounts and allowances

reducing prices to reward customer responses such as paying early or promoting the product.

market skimming

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.

market penetration

setting a low price for a new product to attract a large number of buyers and a large market share. Quickly and deeply.

customer-value based pricing

setting the price based on buyers perceptions of value rather than on the sellers cost.

price

the only element in the marketing mix that produces revenue

optional product pricing

the pricing of optional or accessory products along with a main product. Ex: GPS for car Start with one model and add options

promotional pricing

use of temporary price reductions to increase short-run sales - I.e. Black Friday and other promotional sales

Customer value based, cost based, and competition based

what are the 3 major pricing strategies?

perfectly inelastic

where the quantity demanded does not change when the price changes. Things consumers absolutely need and there are no other options. Where a firm has a monopoly demand.

value based

which is the beset pricing strategy for most firms?

discounts

• - reducing prices in order to increase sales and reduce inventory (i.e. discounting out of season clothing at Macy's to reduce inventory)

changes hands.

• The price is stablished when the currency for the exchange......

cost based pricing

• Under _____________ pricing, marketers must convince consumers that the product's value is worth its corresponding price

segment based pricing

• price discriminating based on various consumer segments (i.e. Subway costs more in geographic segments such as Hawaii and Alaska)

cost based pricing

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

unit elastic

• where any change in price is matched by an equal change in quantity. (equal to 1)

a large percent change in productivity

♣ A small percentage improvement in price can generate a....

product line pricing

♣ Prices jumps based on features. ♣ Consider competition ♣ Requires review of product costs