class16/17

marketing

What is the narrow definition of "Price"?

The amount of money charged for a product or service.

What is the broad definition of "Price"?

The sum of all the value that consumers exchange for the benefits of having or using the product or service.

In relation to pricing factors, what is the "Price Floor" and what sets the "Price Ceiling"?

Price Floor: Product Costs (there are no profits below this price). Price Ceiling: Consumer perceptions of value (there is no demand above this price).

Pricing Factors (Middle)

Competitors strategies and prices, Marketing Strategy, Objectives and Mix, Nature of market and demand

What are the 3 major pricing strategies?

1. Customer value-based pricing

2. Cost-based pricing

3. Competition-based pricing.

Walk through the 4-step sequence of Cost-Based Pricing.

Design a good product ➔ Determine product costs ➔ Set price based on cost ➔ Convince buyers of product's value.

Walk through the 4-step sequence of Value-Based Pricing.

Assess customer needs and value perceptions ➔ Set target price to match customer perceived value ➔ Determine costs that can be incurred ➔ Design product to deliver desired value at target price.

What are the Advantages and Disadvantages of Cost-Based Pricing?

Advantages: Sellers are certain about costs, price competition is minimized, and buyers feel it is fair.

Disadvantages: Ignores demand and competitor prices, doesn't cover consumers' value perception, and it is not dynamic.

What are the two types of Value-Based Pricing?

Good-value pricing: Offering the right combination of quality and good service at a fair price (e.g., Everyday Low Pricing [EDLP] or High-low pricing).

2. Value-added pricing: Attaching value-added quality, features, and services to differentiate a company’s offers and justify charging higher prices.

What are the two types of "New Product Pricing Strategies"?

1. Market-skimming pricing: Setting high initial prices to "skim" revenues layer by layer from the market.

2. Market-penetration pricing: Setting low initial prices to attract a massive number of buyers and gain huge market share quickly.

Product line pricing

Setting prices across an entire product line.

Optional-product pricing

Pricing optional or accessory products sold with the main product.

Captive-product pricing

Pricing products that must be used with the main product (e.g., razor blades, printer ink).

By-product pricing

Pricing low-value by-products to get rid of them or make a little money on them.

Product bundle pricing

Pricing bundles of products sold together at a reduced rate.

What is Demand Elasticity?

A customer's sensitivity to changes in price. It asks: "If you change the price, does it change how much people want the product?"

Define Elastic vs. Inelastic Demand.

Elastic demand: Demand for a product IS highly sensitive to price changes (e.g., if the price goes up, people stop buying it).

Inelastic demand: Demand for a product is NOT sensitive to price changes (e.g., if the price goes up, people still have to buy it).