Chapter 10: Pricing - Understanding and Capturing Customer Value

Flashcards about pricing strategies and cost analysis.

What is a price?

The amount of money charged for a product or service.

What do consumers give up to gain the benefits of a product or service?

The sum of all the values.

What is crucial when setting prices regarding the consumer?

Understanding how much value consumers place on the benefits they receive from the product.

What is the main principle behind value-based pricing?

Uses the buyers’ perceptions of value, not the sellers cost, as the key to pricing.

In value-based pricing, what is considered before setting the marketing program?

Price

Value-based pricing is __ driven.

Customer

Cost-based pricing is __ driven.

Product

What is good-value pricing?

Offers the right combination of quality and good service to fair price.

What does EDLP stand for?

Everyday low pricing

What does everyday low pricing (EDLP) involve?

Charging a constant everyday low price with few or no temporary price discounts.

What is high-low pricing?

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

What is value-added pricing?

Attaches value-added features and services to differentiate offers, support higher prices, and build pricing power.

What is pricing power?

The ability to escape price competition and to justify higher prices and margins without losing market share.

What is 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.

What does cost-based pricing add to the cost of the product?

A standard markup

Name three types of costs.

Fixed costs, Variable costs and Total costs

What are fixed costs?

The costs that do not vary with production or sales level.

Give four examples of fixed costs.

Rent, Heat, Interest and Executive salaries

What are variable costs?

The costs that vary with the level of production.

Give two examples of variable costs.

Packaging and Raw materials

What are total costs?

The sum of the fixed and variable costs for any given level of production.

What is average cost?

The cost associated with a given level of output.

What is the experience or learning curve?

When average cost falls as production increases because fixed costs are spread over more units.

What is cost-plus pricing?

Adds a standard markup to the cost of the product

Give two benefits of cost-plus pricing.

Sellers are certain about costs and prices are similar in industry and price competition is minimized

Give one drawback of cost-plus pricing.

Ignores demand and competitor prices

What is break-even pricing?

The price at which total costs are equal to total revenue and there is no profit.

What is target profit pricing?

The price at which the firm will break even or make the profit it’s seeking.

Name three considerations in setting price.

Overall Marketing Strategy, Objectives, and Mix, Organizational Considerations and The Market and Demand

Name three other considerations in setting price.

Competitors’ Strategies and Prices, Other External Factors – Economic Conditions, Resellers and Government

What is the cost associated with a given level of output?

Average cost

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

High-low pricing

What is the combination of qualities and services at a fair price?

Good-value pricing

What uses buyer's perception of value rather than seller's cost?

Value-based pricing

What are costs such as packaging and raw materials?

Variable costs