Chapter 12: Pricing Products & Services

Successful pricing strategy matches the product with ______ _______ _______

customer’s value perceptions

What is the equation pertaining to judgement of value?

Value = Quality/Price 

Pricing is the only _______ generator

revenue

What is price anchoring?

utilizing first piece of information to inform us about how we should see a second piece of information

Artificial time constraints target ____

fear/FOMO

Based on the buying situation, price appearance tries to prevent _____

friction that causes the consumer to think about the purchase critically

A price too high may signal ___ _____

low value

A price too low may signal ___ _____

poor quality

Price signaling is dependent on the _____

consumer and how they see things as too high or too low

What is everyday low pricing strategy?

Pricing everyday is somewhere between a normal price and a deep discount price

What is high/low pricing strategy?

Most items are placed at a regular price or above, but key items are priced on sale

What is the cost-plus pricing strategy?

Pricing an item at production cost plus a defined markup percentage

What is bundle pricing startegy?

Give you a better price grouped together than buying everything individually 

What is captive pricing strategy?

Initial product sold at production cost and future costs to maintain the product are more expensive/inflated

What is dynamic pricing strategy?

Shifts based on real-time supply and demand

What is A.I. pricing strategy?

Individualized pricing based on predicted future behavior 

What is freemium pricing strategy?

Free entry to use the product, but to use the better version you have to pay a premium/subscription

What is odd-even pricing strategy?

left-digit bias

What is rule of 100 pricing strategy?

If the item is under $100, % off sounds bigger than $ off

If the item is above $100, $ off sounds bigger than % off

What is product line pricing strategy?

Higher price on some brands/lines, lower price on other brands/lines

What is the economy pricing strategy?

Pricing just below your competition

What is the customer-value pricing objective?

value add

What is the cost-based pricing objective?

based on cost of production

What is the sales-oriented pricing objective?

boost sales volume - increasing and decreasing price to get more people buying

What is market-share pricing objective?

build market share

What is target return pricing objecting?

a specific profit goal

What is the customer-driven pricing objective?

set by customer - auctions/bids/pay what you think it’s worth

Initially, as price of prestige product increases, demand ______

increases

After a certain point, as price of prestige product increases, demand _______

decreases

Elastic demand

change in price → noticeable change in quantity demanded

Inelastic demand

change in price → unnoticeable change in quantity demanded

What are the 4 factors influencing elasticity?

availability of substitutes, income, time, cross-elasticity of demand

How does availability of substitutes effect elasticity? Demand is more inelastic if _______

demand is more inelastic if you view less products as substitutes

How does income effect elasticity? Demand is more inelastic if _____

you have a higher income

How does time effect elasticity? Demand is more inelastic if _____

What is cross-elasticity of demand?

the price of one good influences the quantity demanded of another

What is used to estimate costs?

total cost = fixed cost + variable cost

What 4 categories are included in external environment?

macroenvironment, competitor’s cost, product life cycle, status of the economy

What in the macroenvironment can effect pricing?

politics, economy, technology, social trends

The price that your _____ have can affect your prices

competitors

Depending on what stage in the _____ ____ _____ the product is in influences price

product life cycle - introduction, growth, maturity, decline

What factors of economy status can affect pricing?

unemployment, discretionary income, inflation, consumer confidence

What is price skimming new product pricing strategy?

Price starts high with innovators, and decreases as the market diffuses to the right

What are 2 truths in the early-life in terms of price skimming

some value has to be conveyed to get innovators to invest a large amount, cost per unit is very high

High barriers to entry

industry is harder for other companies to come in and compete with you/undercut

Market penetration pricing relates to the ______ curve

experience

What is the experience curve?

Cost of production goes down as you produce more

What are 2 truths in the experience curve in terms of market penetration pricing

price has to keep competitors out, only works with a market that is price-sensitive

Break-even pricing strategy is when…

the # of sold units’ revenue = total costs

Deceptive reference price

Artificially higher reference price to list an item at sale, but it is just the typical price

Loss leader pricing

you are selling below manufacturing cost and losing money, but you’re the best price in the market

Bait and switch

Baiting consumer in with a good deal and the switch upsells you

What are the illegal forms of pricing?

bait and switch (in certain scenarios), predatory pricing, price discrimination (B2B), monopoly gouging, price fixing

Predatory pricing

pricing with the intent of driving another company out of business

Price discrimination

Charge one price to one customer and a different price to a different customer for the same products

Price discrimination is legal for B2_

C

Price discrimination is illegal for B2_

B

What are the 3 instances when B2B price discrimination IS legal?

economies of scale, product is expected to perish or lose value, need to stay competitive

Monopoly gouging

company taking advantage of a situation and charging unreasonably higher prices

Price fixing

when two or more companies are colluding on pricing always illegal

Horizontal price fixing

2 different companies doing the same thing

Vertical price fixing

2 different companies doing different things