Marketing Instruments - Price Policy, Distribution, and Controlling

Flashcard deck focusing on Marketing Instruments including Price Policy, Distribution, Selling, and Controlling, based on Dr. Ralf Maus's lectures.

Marketing (AMA 2021 Definition)

The activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large.

Price (Warren Buffet quote)

Price is what you pay, value is what you get.

Pricing Power (Warren Buffet)

The single most important decision in evaluating a business.

Price (Kotler's specific amount definition)

The amount of money customers must pay to obtain the product.

Price (Kotler's broad definition)

The sum of all the values that customers give up to gain the benefits of having or using a good or service.

Revenue Production in Marketing Mix

Price is the only element in the marketing mix that produces revenue; all other elements represent costs.

Quality Similarity Impact

In many industries, products of individual competitors are becoming more similar in quality, making price a key differentiator.

Price Transparency Driver

The Internet has increased transparency in many markets.

Globalisation of Competition Effect

Cross-border market entry leads to growing price pressure.

Predatory Competition

Often conducted via price in saturated markets.

New Pricing Models (Rising Tech)

Example: Subscription models.

Business Goal: Volume

Increasing the number of units sold.

Business Goal: Sales

Increasing total revenue.

Business Goal: Market Share

The portion of a market controlled by a particular company or product.

Business Goal: Profit

Financial gain (Total revenue minus total costs).

Objective: Increase ASPs

Increasing the Average Selling Prices.

Objective: Factory Utilization

Pricing to ensure manufacturing facilities are used to their capacity.

Objective: Support Brand Strategy

Aligning prices to reflect and uphold the desired brand image.

McKinsey Profit Impact: $+1\%$ Price increase

Typically generates an operating profit uplift of $6$ to $14\%$, based on 2025 research.

McKinsey Volume Requirement: $-5\%$ Price fall

Requires an average $21\%$ increase in volume just to break even.

Profit Formula Components

Price, Volume, and Costs (Fixed and Variable).

3 K's of Pricing (Simon et al. 2025)

Kunden (Customers), Kosten (Costs), Konkurrenz (Competition).

Economic Price Definition

The crossing point of the supply and demand functions.

Pricing Strategy Correlation (Bruhn 2019)

Depends predominantly on costs, customer demand, and competition.

Pricing Variable: Capacity

The ability of the firm to provide the product or service at a given price.

Pricing Variable: Cycle Stage

The phase of the product life cycle the item is currently in.

Pricing Variable: Compliance/Legal

Laws and regulations governing how prices can be set.

Pricing Variable: Context/Psychology

How customers perceive the price based on psychological factors.

Break-even Pricing (Target Return Pricing)

Setting the price to break even on costs or to achieve a specific target return.

Break-even Volume Formula

$$\frac{\text{Total fixed costs}}{\text{price/unit} - \text{variable costs/unit}}$$

Experience Curve (Learning Curve)

The drop in the average per-unit production cost that comes with accumulated production experience.

Economy of Scale

Related to the experience curve; reduction in cost per unit as production increases.

Cost-Plus Pricing Formula

$$\text{Price} = (1 + \text{margin in \%}) \times \text{cost}$$

Target Costing (Price Formula)

$\text{Price} = (1 + \text{margin in \%}) \times \text{cost}$, driven by company goals/target margins.

Customer Value-Based Pricing

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

Good-Value Pricing

Offering just the right combination of quality and good service at a fair price.

Value-Added Pricing

Attaching value-added features and services to differentiate a company's offers and charging higher prices.

Competitive Pricing

Pricing based on market benchmarks and competitor prices rather than solely cost or customer value.

Price Leader Orientation

Setting prices based on the strategy of the dominant player in the industry.

Price Follower Orientation

Imitation of the most successful competitor, often with an adequate discount.

§ 1 GWB (German Law)

Prohibition of restrictive agreements and practices that distort competition (Price Fixing).

Price Elasticity Definition

Relative change in effect related to a relative change in cause; how much a price change affects consumer behavior.

Price Elasticity Formula ($E_D$)

$$E_D = \frac{\Delta Q/Q}{\Delta P/P}$$

Elastic Demand ($E > 1$)

A small price change causes a large change in the quantity demanded.

Inelastic Demand ($E < 1$)

A change in price results in a proportionally smaller change in quantity demanded.

Unit Elastic ($E = 1$)

The percentage change in quantity is exactly equal to the percentage change in price.

Perfectly Inelastic Demand ($E = 0$)

Quantity demanded does not change, regardless of the price (e.g., often at an airport).

Completely rigid demand

Another term for perfectly inelastic demand ($E = 0$).

Pricing Power Definition (Simon et al. 2025)

The ability of a company to impose its price expectations on the market.

Hermès Pricing Power Strategy

Betting on higher prices while competitors cut theirs.

Customer Price Sensitivity

Describes how important and relevant the price is in the purchase decision.

Acceptable Range (Van Westendorp)

The range between the minimum price and maximum price determined by survey responses.

Minimum Price (Van Westendorp PSM)

The price point where the number of respondents thinking product is 'too cheap' equals those thinking it is 'expensive'.

Penetration Price (Van Westendorp PSM)

The point where the number of respondents thinking product is 'too cheap' equals those thinking it is 'too expensive'.

Indifferent Price (Van Westendorp PSM)

The point where the number of respondents thinking product is 'cheap' equals those thinking it is 'expensive'.

Maximum Price (Van Westendorp PSM)

The point where the number of respondents thinking product is 'too expensive' equals those thinking it is 'cheap'.

Price Positioning Definition

Designing the offer to occupy a special, valued place in the customer's mind that stands out from competitors.

Price Positioning: Functional Component

Positioning based on the product's utility and performance.

Price Positioning: Emotional Component

Positioning based on the feelings the product evokes in the customer.

Price Positioning: Symbolic Component

Positioning based on what the product represents (e.g., status/prestige).

Price Positioning: Ethical Component

Positioning based on moral values or sustainable practices.

Premium Pricing Strategy

High price justified through quality, brand, and/or service (e.g., Rolex, Starbucks).

Price Follower Strategy

Medium price level following market circumstances and competitors (e.g., Milka, Samsung Galaxy A34).

Low Price Leadership Strategy

Aggressive positioning with the objective to offer the lowest price (e.g., Aldi, Ryanair).

Penetration Pricing (Initial Strategy)

Beginning with a low price to gain market share; price may increase later (e.g., Netflix, Disney+).

Skimming Pricing (Initial Strategy)

Starting with a high price then slowly reducing it to broaden the target group and take profits layer by layer (e.g., PlayStation).

Skimming Example: Apple iPhone 2007

Launched at $599$ dollars, reduced to $399$ dollars after three months.

Risk of Skimming Pricing

High attractiveness for competitors to introduce similar products due to high margins.

Risk of Penetration Pricing

Long amortization period of investments and later price increases are difficult.

Price Differentiation

Different prices demanded for products that are identical or very similar in dimensions of space, time, performance, and quantity.

Goal of Price Differentiation

To skim different willingness-to-pay (WTP) in order to increase profits compared to unit pricing.

Six Categories of Price Differentiation

Quantity-based, Temporal, Spatial, Personal, Performance-based, and Price bundling.

Multicomponent Pricing

Example: Electricity pricing, which includes elements like a base charge and a usage charge.

Temporal Price Differentiation

Varying prices by time, such as summer/winter sales or airline season pricing.

Static Price Differentiation Limits

Price reductions may not increase demand if price elasticity is low (e.g., empty parking garages on Sundays).

Spatial Price Differentiation

Different prices based on location (e.g., Munich Glühwein pricing vs. rural areas).

Personal Price Differentiation

Different prices for different groups, such as rebates for students or seniors (e.g., BahnCard).

Performance-based Differentiation

Differentiating by service level, e.g., First Class vs. Economy on flights or room categories in hotels.

Price Bundling

Offering a quantity discount when the customer buys several products together.

Discount, Rebate and Allowance Management

The systematic design and control of all price-related contract terms between list price and net price.

List Price

The recommended retail price or calculation basis for negotiations; first standard prices for trade.

Net Price

The actual sales price achieved after all discounts and bonuses.

Price Waterfall Rebate Examples

Competition rebates, promotional rebates, regional rebates, branch rebates, and loyalty bonuses.

Sconto ($Sc$onto)

A discount related to payment terms (early payment).

Bonus

A retrospective remuneration or rebate linked to the achievement of specific goals or quantities.

Discount (vs Bonus)

An immediate reduction granted at the time of purchase or invoicing.

Psychological Pricing

Occurs when sellers take into account the psychological impact and perception of prices.

Reference Prices (Anchoring)

Prices buyers carry in their minds and refer to when looking at a product (past prices, current prices, situation).

Compromise Effect (Extremeness Aversion)

Customers avoid extreme price options and tend to choose the one in the middle (Good-Better-Best).

GBB

Good-Better-Best pricing architecture.

Nudging

Leveraging psychological defaults to drive higher willingness-to-pay.

Decoy Effect

Introducing a third choice to make a target (usually more expensive) package appear as a better deal.

Dynamic Pricing Definition

Prices adjusted continually to meet the characteristics and needs of individual customers/situations to maximize revenue.

Legality of Dynamic Pricing

Legal as long as companies do not discriminate based on age, gender, or location.

CFQ

Configure-Price-Quote: configuring complex products and generating quotes automatically.

Supply Contract Pricing (B2B)

Long-term agreements (e.g., $12-36$ months) with indexed adjustments, volume commitments, and escalation clauses.

Promotional Pricing

Temporarily pricing products below list price or cost to increase short-term demand.

Cannibalization (Promotion)

The risk that promotional pricing eats into standard sales; requires clear benefit definitions like inventory reduction.

Geographical Pricing Influences

Majorly influenced by transportation costs, shipping costs, tariffs, and delivery speed.

Price Fixing (Public Policy)

Illegal practice where sellers set prices through talks with competitors; also called price collusion.