MRKT 442 Study Guide: Pricing, Product, and Brand Management

Importance of Pricing

Pricing determines how a company captures value from customers, aligns with brand positioning and market strategy, affects consumer demand and perception, functions as a segmentation tool, and influences profitability.

Profit Equation

(Price - Variable Costs) x Demand - Fixed Costs

Price Elasticity of Demand

Measures customer responsiveness to price changes.

Elasticity (E)

E > 1: Elastic (demand changes significantly with price); 0 ≤ E < 1: Inelastic (demand changes little with price); E = 1: Unitary.

Cost-Based Pricing

Price = Cost + Markup.

Markup on Price

MU / Price.

Markup on Cost

MU / Cost.

Breakeven Analysis

Volume = (Operating Income + Fixed Expenses) / Margin per Unit.

Breakeven Volume

Fixed Costs / Margin per Unit.

Breakeven Market Share

Breakeven Volume / Total Market Demand.

Market-Based Pricing

Starts with customer value and willingness to pay; subtract discounts and costs to determine acceptable margin.

Psychological Pricing Tactics

Includes absolute vs. relative thinking, framing, charm pricing, compromise effect, mental accounting, and referent pricing.

Skim Pricing

High initial price; targets quality-conscious segments.

Penetration Pricing

Low entry price; attracts mass market.

Low-Cost Leader

Focus on reducing costs to maintain low price.

Multi-Segment Pricing

Price differentiation for different market segments.

Promotions

Boost short-term sales, may harm brand image.

Buyer Strength

High when they are a large portion of seller's sales or have many alternatives.

Seller Strength

When product is scarce, unique, or during economic booms.

Product Fundamentals

Good, service, or idea bundled with tangible and intangible benefits.

Core Product

Core benefit (e.g., transportation).

Tangible Product

Features and design (e.g., car specifications).

Augmented Product

Services and extras (e.g., delivery, support).

Product Mix

All products offered by a firm.

Breadth

Number of product lines.

Depth

Number of items in each line.

Product Line

Closely related group of products (e.g., all Frigidaire refrigerators).

Product Life Cycle (PLC)

A model describing the stages a product goes through from introduction to decline.

Introduction Stage

Characterized by low sales, high costs, skim or penetration pricing, and limited distribution.

Growth Stage

Marked by rising sales and profits, greater distribution and competition, and a focus on superiority.

Maturity Stage

Sales plateau with intense competition and brand loyalty; promotion focuses on reminders.

Decline Stage

Sales fall as new products dominate; strategies include divest, harvest, or rejuvenate.

Diffusion of Innovation

The process by which new ideas and technologies spread among consumers.

Innovators

Risk takers and first adopters of new products.

Early Adopters

Informed consumers who are price-insensitive and adopt innovations early.

Early Majority

The mass market that is value-focused and adopts innovations after early adopters.

Late Majority

Skeptical consumers who need social proof before adopting innovations.

Laggards

Consumers who are price constrained and reluctant to adopt new products.

Types of Innovation

Categories of innovation based on the level of learning required.

Continuous Innovation

Involves minimal learning, such as introducing a new flavor.

Disruptive Innovation

Creates new value with some learning required, exemplified by services like Uber.

Discontinuous Innovation

Requires high learning, such as virtual reality technologies.

Brand

A name, term, design, or symbol identifying a seller's goods/services.

Brand Name vs. Brand Mark

Brand Name refers to spoken elements, while Brand Mark refers to visual elements.

Brand Equity

The value attributed to a brand name, measured through financial, customer-based, and product-market metrics.

Brand Associations

Connections consumers make with a brand, including intrinsic (functional) and extrinsic (image-based) factors.

Brand Architecture

The structure of brands within a company, including sub-brands, branded houses, and house of brands.

Brand Portfolio Roles

Different roles brands play within a portfolio, such as bastion, flanker, fighter, and prestige brands.

Pricing Strategy

Approaches to setting prices for products, including penetration and skim pricing.

Contribution Margin

The difference between the selling price of a product and its variable costs.

Break-even Point

The number of units that must be sold to cover total fixed and variable costs.

Core product

The fundamental benefit or service that a product provides.

Tangible product

The physical attributes of a product that can be seen and touched.

Luxury product

Not a formal product level.

Augmented product

Additional services or benefits that enhance the core and tangible product.

Product life cycle

The stages a product goes through from introduction to decline.

Discontinuous innovation

Requires high consumer learning as it significantly changes habits.

Product mix

The total set of products offered by a company.

Breadth

The number of product lines in a product mix.

Depth

The number of items in each product line.

Rejuvenation strategy

Add new features, reposition for a niche, or rebrand to regain interest.

Diffusion of innovation curve

A model that categorizes adopters based on their willingness to embrace new products.

Innovators

Risk-takers who are the first to adopt new products.

Early adopters

Opinion leaders who adopt new products early.

Early majority

Pragmatic consumers who seek value.

Late majority

Skeptical consumers who are cautious in adopting new products.

Laggards

Price-sensitive consumers who resist change.

Brand architecture model

The structure of brands within a company.

Branded House

A model where a single brand is used for multiple products.

House of Brands

A model featuring independent brands with distinct identities under one parent company.

Brand extension

When a brand is used to launch a product in a new category.

Brand equity

The financial value attributed to a brand name.

Flanker brand

Targets a niche without hurting the main brand.

Fighter brand

Competes aggressively on price to fend off competitors.

Intrinsic brand associations

Functional attributes such as product durability.

Extrinsic brand associations

Emotional or symbolic attributes such as eco-friendly image.

Price Elasticity

Describes how sensitive customer demand is to price changes.

Cost-based pricing

Starts with costs and adds a markup.

Market-based pricing

Begins with customer value and sets price accordingly.

Charm pricing

Pricing strategy where items are priced just below a round number.

Compromise effect

Consumers choose the middle option to avoid extremes.

Contribution margin

Calculated as sales revenue minus variable costs.

Breakeven units

The number of units that must be sold to cover costs.