Pricing - 8

nguyp035's version from 2016-05-14 17:10

Section 1

Question Answer
Creation of brand values process..Price > Brand > Positioning > Target market
Price is...what we charge customers for our products.
Price has can be a SIGNAL of QUALITY - COMMUNICATES information about the product - support the brand position - price PREMIUM is a measure of brand equity - opportunity costs
Pricing is..the process of determining the value received by an organisation for their product/service
Pricing strategies may be used to...maximise profits, defend market from competitors, increase market share, etc.

Section 2

Question Answer
Pricing Process consists of...
1- Developing pricing objectivese.g. profit orientated (maximise profit), sales orientated ( maintain market share), status-quo orientated (stabilising prices)
2- Estimate demandestimate total demand for the product based on market forecasts, degree of competition, channel options..
3 - Determine costsCost plus pricing not always desirable as not sensitive to demand, need to consider elasticity of demand and relevant costs.
4 - Evaluate the pricing environmentLooking at the economy, competition, consumer trends - ability to adapt?
5 - Choose a pricing strategyplan of action which adjusts to the changing condition of the market place - Discounting - loss leader - skimming - penetration
6 - Develop pricing tacticsare short term.

Section 3

Question Answer
Pricing objectives could be to...encourage 'brand switching' - encourage existing customers to consume more - encourage trial of new products
attract new customers to brand/product - raise awareness of brand
REVENUE or market share objectives
Also should consider competitive effect objectives & image enhancement objectives (for luxury products, consumers use price to measure quality)

Section 4

Question Answer
Needs wants and demands leads to...Sales
Demand refers to..a customers WILLINGNESS and ABILITY OF PAYMENT for products
Unit sales are..observable, demand is not (may use these terms interchangeably)
Revenue =Price X Unit Sales (We want to maximise revenue)

Section 5

Question Answer
A demand curve shows...the quantity of a product that customers will buy in a market during a period of time at various prices (if all other factors remain same) - we may use regression analysis, market research
Price elasticity of demand is measured by..% change in QTY demanded / % change in PRICE
Percentage change = (NEW demand or price - OLD demand or price) / original
A product is elastic in demand if PED is..greater than one (1.3) more than proportional change in demand
A product is inelastic in demand if PED is..less than one e.g. (0.9) less than proportional change in demand
In general food items are..more elastic in demand than nonfood items.

Section 6

Question Answer
What determines price elasticity of a product?
Product itselfis it a shopping product, convenience product (habit/impulse), specialty product (loyal to), unthought - Are there SUBSTITUTES? - Are they REAL or PERCEIVED necessities? - complementary product? (price of one good goes down, demand of other goes up)
Consumersattitudes, disposable income, education, family size..
Competitorsintensity, versus product differentiation, substitutes availiable?
Situationumbrella needed for rain, bottled water? - bought by family at weekend? professionals on way to work?

Section 7

Question Answer
What causes demand to rise?Marketing activities, ads promotions, change in income, price, tastes
What causes demand to fall?Competition, higher prices, increase in substitutes, poor quality,

Section 8

Question Answer
Types of costs are...Fixed costs, variable costs..
Average fixed cost = total fixed cost / number of units produced (decreases as number of units produced increases)

Section 9

Question Answer
Pricing strategies...
Cost-plus pricing, straight mark-up pricing...adds up all the cost (labour, material, overheads) and adds a mark up on top e.g. 30% to arrive at a price.
used for perfect competition, e.g. commodities, crude oil, salt, rice - little differentiation, low price elasticity
Demand-based pricing (customer based)...using consumer demand based on perceived value to set a price
target sales-price relationship
Demand based pricing for new markets, pilot markets
Demand based pricing based on historical transactional data..for existing, mature products - to calculate for the price elasticity - lots of influencing factors e.g. competition, price leadership
Differential pricing (Price discrimination)...selling same product to different customers at different prices based on segments - e.g. airline tickets, seasonal, hotel, customer type e.g. student
it finds a segment and sets up the barrier (membership/timing for travel/feature of product)
Value Pricing...sets prices based on the value perceived by the customer rather than on the cost of the product or historical prices
How do we estimate the perceived value...?Carry out marketing research surveys - combined with differential pricing?
ExamplesEveryday low price (EDLP) promises low price without need for sales - Hi/Lo price comparisons (different supermarkets)
Benefits and drawbacks of value pricing attracts customers - lower margins - but non-differentiated price
Skimming Price (for new products)high price at first and then gets lowered down.
price inelastic based on unique features, price discrimination in the time horizon, limitation to the diffusion process (acceptance), competition e.g. iPhones
Penetration pricing (for new products)offering low price for a new product/service to attract customers
encourages trial purchase, diffusion, competition off guard, barrier to entry
Variant: Predatory pricingsimilar to penetration to fend off comp - ILLEGAL
Variant: Bait and hook (printer/razor blade) trial pricingProduct carries a low price for a limited time period, apps free for a limited time.. to bait in, whilst hook charges hefty prices.

Section 10

Question Answer
Pricing TACTICS.. short term attempt to manipulate price of a product to meet objectives
Reference pricehow much consumer expects to pay for a good in relation to other competitors and previously advertised price. (price expectation)
e.g. was £199.99 now £129.99
Internal reference price is when..consumers have a pre-set FAIR PRICE in their mind
Competition as a reference price...Assimilation effect (perception becomes reality) e.g. automotive
Higher price may infer higher quality product but...For what product? Convenience (habit/impulse), shopping (those that you don't buy much), speciality product (actively seek to purchase)?
For which segment?
Higher price infer higher quality when...quality is not easily discernible e.g. perfume, wine
Occurs when risk of not working is high (risky) e.g. postage carrier, safety
In interaction with other characteristics e.g. advertising, packaging, product design
consumers are less knowledgeable
Odd-even pricing (psychological pricing)Takes advantage of customers cognitive bias (ending in 1,3,5,7,9)
60% of ad material prices end in .X9 - 30% ends in .Y5 - 7% ends in .Y0
out of [.99, .88, .00] .99 had most purchases.
We judge a price as less expensive if it has price ending in...£X.Y9
Odd-even pricing is useful mostly...on the internet which products are searched for by price brand/range. £199.99 would fall under £200 bracket.

Section 11

Question Answer
Prices are critical for firms as they determine.. revenues and profits.
Price is integrated with...Promotion.
General rules -
Costs set the...floor. (loss leaders e.g. kindle - does not make a profit but set at a price to attract customers)
Competitors provide a...benchmark
Consumer willingness to pay provides a...price ceiling.
It is important to identify the three C's...competitor, company, customer and then set up the price based on various pricing strategies / tactics.