Key Questions and Concepts - Pods 8, 9, 10

Key Questions and Concepts - Pods 8, 9, 10

Q1: Customer Requirements for a Sale

• Willingness and Ability to Buy:
  • A sale requires the customer to possess both willingness and ability to buy the product.

Q2: Perceived Value

• Definition:
  • Perceived value is determined by a mental evaluation by the consumer, where:
  • Perceived Benefits: These can be tangible (physical attributes) or intangible (brand reputation).
  • Perceived Costs: The costs include:
    • Actual price printed on the product.
    • Additional risks such as repair or replacement costs.
    • Psychological discomfort from potential buyer’s remorse or social status implications.
• Value Assessment:
  • Benefits must outweigh costs for the consumer to consider the product worthwhile.

Q3: Importance of Pricing for a Company

• Key Points:
  • Pricing must align with the brand's position and associated value.
  • Pricing is the only element of the marketing mix that generates revenue and profit; all other elements incur costs.
  • Pricing influences:
  • Financial health of the company (price floor and profit levels).
  • Consumer demand (price ceiling, price elasticity).
  • Competitive actions.

Q4: Major Approaches to Pricing

• Three Approaches:
  1. Cost-Based Pricing:
  • Setting price based on the costs incurred in production.
  1. Competition-Based Pricing:
  • Setting price based on competitors’ pricing.
  1. Consumer-Based Value Pricing:
  • Setting price based on the perceived value to the consumer.
• Application:
  • All three approaches should be evaluated to arrive at a final pricing strategy.

Q5: Costs-Based Pricing Concepts

• Break-Even Point (BEP):
  • The level of sales (units or revenue) necessary to cover fixed and variable costs, resulting in zero profit.
• Design to Cost:
  • Also known as target costing, this involves controlling the costs during product design to reach a targeted selling price.
  • Example: Low-cost brands like Dacia and Ryanair optimize costs to sustain pricing.

Q6: Scenarios for Competition-Based Pricing

• Key Strategies:
  1. Matching Competitors' Prices:
  • Employed when products are similar and perceived differences are minimal.
  1. Premium Pricing:
  • Products are priced higher due to unique features or superior value. (e.g., Nespresso)
  1. Penetration Pricing:
  • Setting lower prices to enter a market and attract customers, eventually achieving lower cost structure.

Q7: Broad Positions in Consumer-Based Pricing

• Three Categories:
  1. Economy Position:
  • Low price, low quality.
  1. Medium Value Position:
  • Medium price, medium quality.
  1. Premium Positioning:
  • High price, high quality.

Q8: Key Points on Pricing Tactics

• Value Enhancement:
  • Aim to increase value presented to consumers rather than reducing price.
• Price Variation Management:
  • Excessive price variations and discounts might undermine perceived product value and regular pricing.
• Objective Determination:
  • Consider goals in pricing strategies:
    • Attract new consumers.
    • Increase consumer loyalty.
    • Clear inventory.
    • Combat competitor sales.
    • Drive store traffic.