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What are the three categories of Pricing Objectives?
- Profit Oriented
- Sales Oriented
- Status Quo
Briefly explain the three versions of Profit-Oriented pricing objectives.
- Profit Maximization: setting prices so that total revenue is as large as possible relative to total costs
- Satisfactory Profits: attain a level of profits consistent with the level of risk the company faces
- Target Return on Investment: (ROI) a % that puts a firm;s profits into perspective by showing profits relative to investments
How are Sales Oriented pricing objectives based?
- Market share: a company's product sales as a % of ttl sales for that industry.
- Sales Maximization: ignores profits, competition and the marketing environment as long as sales are rising.
Status Quo pricing focuses on what?
Seeks to maintain exissting prices or to meet the competitiion's prices. Passive policy.
What are four factors that affect Elasticity?
- Availability of Substitutes
- Price relative to Purchasing power
- Product Durability
- A Product's Other Uses
- Rate of Inflation
What are the two main determinants of Pricing Decisions?
- Cost: How much do we need to charge to cover our costs?
- Demand: How much demand will there be for our product at a certain price?
Describe the 4 steps in the Pricing Process.
- Establishing Pricing Goals/Objectives
- Estimate demand, costs & profits
- Choose pricing strategy to determine base price
- Fine-tune base with pricing tactics
What three basic approaches are used when companies use serious planning for creating a price strategy?
- Price Skimming
- Penetration Pricing
- Status Quo Pricing
What is Price Skimming?
Works best with electronics...denotes a high price relative to the prices of competing products, often used for new products when the product is perceived by the target market as having unique advantages.
What is Penetration Pricing?
Charges a relatively low price for a product as a way to reach the mass market. Tends to be effective in a price-sensitive market ex) Walmart.
What is Status Quo Pricing?
Meeting the competition or going rate pricing.
Where does Price Skimming work well?
- Product is perceived to have unique advantages
- Competitors can't easily copy the product
- Significant segment of market are ready to pay higher price (innovators and early adopters)
What affects does Penetration Pricing have?
- Low prices quickly grow sales & market share
- Discourages competition
- May encourage market growth - more buyers enter market
- Lower profits per unit - high volumes needed for profitability
What is Predatory Pricing?
When large companies are forcing small companies out of business by setting prices unreasonably low...then, once the competition is gone, they immediately raise their prices again.
What is price lining?
- A series of pricing for a line of merchandise that creates a perceived separation between different models:
- "our base model"
- "our premium model"
- "our super premium model"
What is Captive Pricing?
- Relatively low price and profit margin for initial investment then higher prices and profit margins for supplies.
- (Printers & Ink Cartridges)
Compare Bundling vs. Unbundling.
- Bundling: one price for a package or one or more goods(internet+cable+phone) - More difficult to comparison shop
- UnBundling: charging for services/products previously included in bundles(airlines bag check fees)
What are three examples of Rate Structures?
- Flat-rates (Netflix)
- Pay-per-usage (Pay per view)
- Two-part pricing
What is the deal with Odd-even Pricing?
Based on assumptions that consumers see odd prices as a signal of a bargain therefore buy more at $9.99 than at $10.
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