mktg 409 exam 4 (pricing)

odd/even pricing

$99.97 better than $100.

Stages for Establishing Prices

1. Development of pricing objectives 2. Assessment of target market's evaluation of price 3. Evaluation of competitors' prices 4. Selection of a basis for pricing 5. Selection of a pricing strategy 6. Determination of a specific price

A retailer of Degree antiperspirant prices it at $4.00; it costs the retailer $3.50. What is the approximate markup as a percentage of selling price?

12.5%

Select Pricing Basis: Cost-Based Markup

Adding a predetermined % to the cost Cost-based markup %: markup/cost Price-based markup %: markup/price Example: Product costs $50, final price is $100 What is the markup% based on cost? What is the markup% based on price? Example: Setting price with a 100% cost markup Example: Setting price with a 50% cost markup

Select pricing basis: Cost- based Cost-plus pricing

Adding a specified dollar amount to he seller's costs

Survival

Adjust price levels so the firm can increase sales volume to match organizational expenses.

The Importance of Price to Marketers

Affects demand Affects profits •Profit = Total Revenue - Total Costs •Revenue = Price x Quantity Sold Has a psychological dimension Has important legal implications

Product line pricing

Captive pricing: when pricing for the main product is relatively low, but accessories are high. Premium pricing: highest quality product is the most expensive. Price lining: choice are grouped into categories, retailers focus on price decisions. Bait pricing: pricing an item low to attract features of the customers to upgrade. Bait and switch is illegal: salespeople actively attempting to discourage customers to get bait product.

EDLP vs High/low pricing

Create value in different ways EDLP saves search costs of finding lowest overall prices High/low provides the thrill of the chase for the lowest price Grocery industry: heb is a low price retailer. when compared to Kroger. Department stores: Dillards vs Macy's. Macys is relatively more expensive than dillards. But macy's typically has major sales. Prestige pricing: higher prices, higher quality.

Select Pricing Basis: Demand-Based

Customers pay a higher price when demand is strong and a lower price when demand is weak (uber's pricing strategy)

Differential Pricing Techniques

Definition •Charging different prices to different buyers Types •Secondary-market •Negotiated •Periodic and Random discounting ( one consumer paid less at a different time)

Profit

Identify price and cost levels that allow the firm to maximize profit.

return on investment

Identify price levels that enable the firm to yield targeted ROI

Assess Target Market's Evaluation

Importance of price depends on: •Type of product •Type of target market •Purchase situation Value focus

Non-price factors affecting demand

Market •Degree of competition •Competitor action/reaction •General economic conditions Product •Quality •Range •Nature- essential/luxury Substitutes Support •Service at point of sale and after •Advertising/promotion •Distribution Methods

Conjoint analysis

Market research technique where consumers make tradeoffs between features, benefits, and price. like eye exam, flipping back and forth on which eye glass is better. Charging the right price. Right product at the right time for consumers.

Innovative pricing: pay what you want

Pay what you want: five Paris hotels allow customers to set room rates. Marketing studies show such schemes can boost sales. if successful, pilot may be expanded across France. Social creatures human nature. He doesn't not know it whether it is the novelty of pricing or psychology of the pricing, but it is a psychological issues, and definitely innovative.

Psychological Pricing: Video: Psychology of retail pricing (CEO of JCPenny)

People look at the figure on the left hand side. JCPenny wants to bring dignity back and also trying to polish their image. Stores use pricing tricks because they work. Odd/even pricing:

New Product Pricing

Price skimming •Charging high price to recover investment (at first price is high, then when the investment is recovered it is dropped, usually with high-tech products) Penetration pricing •Price below competition to gain share early (low prices to gain market share, then increases)

Select Pricing basis: Competition- based

Pricing influenced by competitors' prices when: •Competing products are homogeneous •Price is a key consideration to market

Professional and promotional pricing

Promotional Pricing •Price/loss leaders (retailers set their low prices, marketer will want the customers to change their mind to something more expensive) •Special event pricing (set fee for an office visit.) •Comparison discounting Professional Pricing

Evaluate Competitors' Prices

Regular function of marketing research Customer's perceptions •Pricing above competition creates an exclusive image •Pricing below competition gains market share

develop pricing objectives

When establishing prices, a marketer's first step is to

Which of the following pricing strategies often results in a retailer losing money on the product?

a. Ethical pricing b. Psychological discounting c. Special-event pricing d. Price leader e. Penetration pricing

Which of the following bases for pricing is most commonly used by retailers?

a. Markup pricing b. Demand-based pricing c. Cost-plus pricing d. Negotiated pricing e. Differential pricing

Amtrak is considering two pricing strategies for its service. One is to price its train tickets so that it is less expensive to travel on weekends than during the week when there is heavy business travel, which illustrates _____ pricing. The second is to price its train tickets so that the further away the travel date, the greater the discount, which is best described as _____.

a. demand-based; differential pricing

The fact that senior citizens are charged a lower price at movie theaters than younger adults is an example of ____ pricing.

a. differential

All of the following are pricing strategies used by companies establishing prices of multiple products within a product line except

a. premium pricing. b. captive pricing. c. price lining. d. bait pricing. e. penetration pricing.

Suppose that Maui Jim is considering a new line of sunglasses that would be sold in major department stores. The new line would be positioned as a more distinctive brand than the typical sunglasses sold through department stores, and would be priced higher than other brands in the store, but a lower price line than the current Maui Jim lines that are sold through specialty stores. In determining the price for this sunglass line, Maui Jim wants to gather information about all brands sold in department stores and about customers' perceptions of those brands. Refer to Scenario 20.1. Given Maui Jim's plan for positioning the new sunglass line, it should use a ____ strategy when introducing its new product.

a. price-skimming

market share

adjust price levels so the firm can maintain or increase sales relative to competitors' sales

During the hot, humid months of July and August, Pinewood Links Golf Course, located in Georgia, offers weekday rates of $13 for a round of golf with a cart. During the rest of the year, the weekday rates are between $25 and $35. This is an example of the use of

b. demand-based pricing.

A price-skimming strategy assumes that

b. the initial demand is highly inelastic.

If Albertsons Market advertise 2-liter bottles of Coca-Cola for 89 cents to generate store traffic so that shoppers will purchase other items at regular prices, the grocer is using

c. a price leader.

If Kashi wants to gain a large market share quickly with its new line of reduced-fat snack crackers, it should use

c. penetration pricing.

Reference pricing is

c. pricing a product at a moderate level and positioning it next to a more expensive model or brand.

Which of the following pricing objectives sets prices to recover cash as quickly as possible?

cash flow

When determining markup as a percentage of cost, divide the markup amount by

cost

When a seller's costs are usually determined during or after a product is made and then a specified percentage or dollar amount is added to the cost to establish a price, an organization is using ____ pricing.

cost-plus

Services that are performed by lawyers, dentists, or doctors are typically priced using ____; sometimes these prices are not based on the amount of time that is spent in each situation, but are based on a flat fee regardless of the difficulty involved.

d. professional pricing

_____________ is pricing a product at a moderate level and positioning it next to a more expensive model or brand.

d. ​Reference pricing

If a product is priced based on how many or how few people want it at a particular time and place, ____ pricing is being used.

demand-based

Glenn is shopping for a new coat at Marshalls and finds a North Face down jacket that he really likes. He knows that the North Face brand is considered to be high quality and that it's usually very expensive. He's pleasantly surprised to see the price—the "suggested retail price" is $199 and Marshalls' price is $99. Glenn decides to purchase the coat even though it's a little more expensive than he originally thought he'd spend on the jacket. What type of pricing strategy is Marshalls using to price the North Face jacket and other merchandise?

e. Comparison discounting

When Texas Instruments first introduced its line of graphing calculators, it set the price quite high; it has lowered the price as competitors have entered the market. The pricing strategy initially used by Texas Instruments is called

e. price skimming.

Euan is planning three sales during the third quarter of the year at Party City. The first is at a week before Easter, the second is the week before Halloween, and the third is Black Friday. These sales would be considered to be

e. special-event pricing.

psychological pricing bundle pricing

having a single price for having two or more different products (combo of a hamburger)

psychological pricing Multiple unit pricing:

having a single pricing for multiple of the same item. (duracell batteries)

status quo

identify price levels that help stabilize demand and sales

Importance on ketchup bottles:

it is important to keep image and price aligned with expectations of store brands.

A product is a price leader when

it is sold at less than cost in the hope that sales of other products will increase.

Adidas is establishing a ______ pricing objective to maintain or increase its product's sales in relation to total industry sales.

market share

Determine a specific price:

prices are the easiest thing to change, select one basis of strategy from the examples often used technique that derive stated objectives.

cash flow

set price levels to encourage rapid sales

Product quality

set prices to recover research and development expenditures and establish a high-quality image

Maintaining a certain market share, meeting competitors' prices, maintaining a favorable image, and achieving price stability are all associated with a ____ pricing objective.

status quo

Which pricing objective de-emphasizes price and can lead to a climate of nonprice competition in an industry?

status quo

Terms used to describe price

taxi cabs: fare restaurant: bill doctor: fee Airline: fare living space: rent

Uber example:

uber charging ridiculous prices on special event dates. Uber generally is cheaper than taxis but on special dates they do go up.

Price

•The value paid for a product in a marketing exchange. •Does not always take the form of money. •The oldest form of trade is barter.