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–is the amount of money charged for a product or service.
–is the sum of all the values that consumers exchange for the benefits of having or using the product or service.
–charging different prices depending on individual customers and situations.
Pricing Best Practices
- Develop a unique pricing mentality.
- Consistently deliver more value.
- Price strategically, not opportunistically.
- Know your competition.
- Make pricing a process.
Pricing Decision Factors
* Internal Factors:
- Marketing objectives
- Marketing mix
- Organization style
- Target market
- Positioning objectives
Pricing Decision Factors
* External Factors:
- Nature of the market
- Economic state
- Reseller needs
- Government actions
- Social concerns
–Many buyers and sellers where each has little effect on the going market price
–Many buyers and sellers who trade over a range of prices.
–Few sellers and sensitive to each other’s pricing/marketing strategies.
–Market consists of a single seller.
–The relationship between price
changes and the number of units sold.
–A way of measuring how sensitive the market is to price changes.
– minimal change in demand as price increases.
– significant drop in demand as price increases.
General Pricing Approaches
- Cost-based approach
- Value-based approach
- Competition-based approach
–Cost-plus pricing (cost of product + markup).
–Consumer perceptions of value.
–What competitors are charging.
Pricing New Products
- Skimming Pricing
- Penetration Pricing
–High price to reap maximum profit from early adopter segments.
–Can encourage competition.
–Products must be unique and hard to copy.
–Low price to gain maximum market share.
–May discourage competition.
–Used when the product is easily copied.
Product Mix Pricing Strategies
- Product Line
- Product Bundle Pricing
- By-product Pricing
–Involves setting price steps between various products in a product line.
–Pricing optional or accessory products sold with the main product (e.g., ice maker with the refrigerator).
–Combining several products and offering the bundle at a reduced price (e.g., computer with software and Internet access).
Product Bundle Pricing
–Pricing products that must be used with the main product (e.g., replacement cartridges for Gillette razors).
–Setting a price for by-products in order to make the main product’s price more competitive (e.g., sawdust and buttermilk).
- Discount and allowance pricing
- Segmented pricing
- Psychological pricing
- Promotional pricing
- Geographical pricing
- International pricing
– a straight reduction based on cash, quantity, function, season.
Kinds of Discounts
- Cash (save 2 pesos)
- Quantity (plus 20ml free)
- Function (with fabcon)
- Season (discount based on season)
– promotional money paid by manufacturer to retailer.
- Selling a product or service at two or more
prices, where the difference in prices is not based on differences in costs.
- Location pricing
- Time pricing
•Consumers usually perceive higher-priced products as having higher quality.
•Consumers use price less when they can judge quality of a product.
Promotional Pricing Approaches:
- Special event pricing
- Low-interest financing
- Longer warranties
- Free maintenance
- Cash rebates
Price based on the following:
Pricedepends on many factors, including:
–Laws and regulations
Initiating Price Changes
- Price Cuts
- Price Increases
–Falling market share.
–Dominate market through lower costs.
–Cannot supply all customers’ needs.
Responding to Competitor Price Changes
* When a competitor lowers prices:
- Reduce price to match the competitors’ price.
- Maintain price but increase the perceived value of the offer.
- Improve quality and raise price.
- Hold price and introduce a new brand at a higher price.
- Hold price and introduce a new brand at a lower price (fighting brand).