Marketing Principles – Chapter 10

What is the only marketing mix element that translates the value created for customers back into revenues and profits for the company?

Pricing

Pricing is considered one of the __________ marketing mix elements.

most flexible

How does pricing affect the firm's profitability?

Price directly affects profitability and helps create customer value as part of the firm's value proposition.

What sets a(n) __________ for product prices?

Customer perceptions of value set the upper limit/ceiling.

What sets the __________ for a product price?

Product costs set the floor.

Define Customer value-based pricing.

Setting price based on buyers' perceptions of value rather than on the seller's cost.

What are the main assessments involved in value-based pricing?

Assesses customer needs and customer perceptions, the  most profitable way to price products and services, and set to match perceived value

What is the strategy in good value pricing?

To offer the right combination of quality and good service at a fair price.

What is meant by everyday low price?

Products sold at the same low price every day without any limited time offers or special discounts.

What involves charging higher prices regularly but running promotions to lower prices temporarily on selected items?

High-low pricing.

Define value-added pricing.

A strategy where a company charges a premium price by enhancing the product or service with additional features, quality improvements, or unique benefits.

What does cost-based pricing involve?

Setting price based on the costs of producing, distributing, and selling the product plus a fair rate of return for effort and risk.

What are costs that change with the level of production referred to as?

Variable costs.

Why does the average cost per unit decrease as production increases?

Fixed costs are spread over more units.

What can we infer if a company increases production from 1,000 units to 2,000 units?

Producing 2,000 units per day would lower the unit cost compared to producing 1,000 units.

What is the term for the drop in the average cost due to accumulated production experience?

Experience curve.

What is representative of the drop in average per-unit production cost that comes with accumulated production experience?

Experience curve.

What do companies gain with higher volume production and accumulated experience?

Economies of scale.

What does a downward-sloping experience curve indicate?

The falling unit production cost of a company.

What is a potential risk of experience-curve pricing?

Aggressive pricing often gives a product a cheap image.

How can a company take advantage of a downward-sloping experience curve?

By selling higher volume, pricing its products lower, increasing production output, and decreasing costs through experience gained.

What is cost-plus pricing?

A specific type of cost-based pricing where the company adds a fixed percentage markup to the production cost to determine the selling price.

Why is markup pricing considered impractical?

Because it ignores demand and competitors pricing.

What is the break-even volume?

The point at which the total revenues and total cost curves intersect.

What is the best pricing approach if a company wants a return on equity?

Target return pricing.

In a break-even pricing model, what happens as a manufacturer increases the price?

The breakeven volume drops.

What is competition-based pricing?

Setting prices based on competitors' strategies, costs, prices, and market offerings.

What two questions should be asked when assessing competitors' pricing strategies?

1. How strong are the current competitors? 2. What are the competitors' current pricing strategies?

When can companies legitimately charge a higher price?

If consumers perceive that the company’s products offer greater value.