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50 Cards in this Set
- Front
- Back
- 3rd side (hint)
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Price
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Money or other considerations exchanged for the ownership or uses of a good or service.
Ex: Fares, tuition, admission, rent, tolls, bartered goods |
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Barter
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Practice of exchanging goods and services rather than money.
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Economic view of price and value
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>Consumer's assess the value of an offer in the marketplace by comparing the offer's benefits to its price
>As price increases, value decreases, and demand decreases. |
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Total Offer Value
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Perceived Benefits/Price
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What creates value for the buyer?
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Product, Promotion, Place
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What does price capture?
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Captures value for the seller via profits...corporation profit
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Higher prices may create benefits and value if:
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>Buyers infer quality from price
>High price adds status or psychological benefits |
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Price for profit: "Long term profit horizon"
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A company gives up immediate profit for lower prices for better growth, market share, competitive advantage
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Price for profit: "Short term maximizing or target return objective"
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Need to know cost/demand curves
Common in many firms b/c the targets can be set and performance measured quickly. |
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Pricing Objective (5)
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(1) Profit
(2) Sales (3) Stability (4) Survival (5) Social Responsibility |
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Pricing Objectives (Sales/Market Share):
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Objective is to increase sales revenue, which in turn lead to increaes in market share and profit.
>Easily communicated targets >$ sales important for leverage with distribution channels >Unit sales important if you expect an experience curve effect |
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Experience Curve Effect
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As cumulative volume double, unit cost decreases by a fixed percentage due to process innovation and product redesign.
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Pricing Objectives (Price for stability):
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>Powerful competitors want to avoid price wars
>Price changes initiated by a price leader |
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Pricing Objectives (Price for survival):
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>Try to cover costs
Temporary Profits, sales, market share are less important than mere survival |
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Price Objectives (Price for social responsibility):
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Firm may forgo higher profit on sales and follow an objective that recognizes its obligations to customers and society in general (drugs)
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Constraint on pricing:
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Costs: Production/marketing costs, costs of a price change
Competition: product life cycles, competitor's prices Demand: price elasticity of demand, your product line, reference points, price-quality perceptions External: Social welfare, legal restrictions |
Single Product- Only product of its kind- firm has more control over price
Product line - one of many, price has to be consistent with others Price must cover the costs of producing and marketing the product Newness of the product Cost of changing prices and the time period they apply |
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If demand is price inelastic, you can increase revenue by?
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Raising prices - changes don't significantly change demand
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If demand is price elastic, decreasing price will?
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Increase revenue
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Buyers are less sensitive when:
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Item is a necessity
Purchase process is habitual Item is low cost Purchase is infrequent Few or no substitutes *High brand equity reduces price sensitivity |
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What causes a demand curve to shift negative?
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>New substitutes
>Lower budgets >Market changes |
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What causes a demand curve to shift positive, to the right?
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>Brand building
>Improved quality >Increased income >Market changes |
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Break even point
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Quantity at which Total Revenue=Total Cost
Q(Unit Price)=Fixed Costs+Q(Unit Variable Cost) Q=Fixed Costs/(P-UVC) |
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Fixed Costs
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Advertising
Packagin costs Sales force salaries |
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Variable costs
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Trade discounts
Sales force commissions |
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"Skimming Pricing" (Demand oriented pricing)
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Setting price high at first
>Introduce innovation to price-insensitive innovators >Lower price in steps to next segments Good Strategy When: high barriers to entry, high price seen as high quality, lowering price will not yield higher volume and lower costs |
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"Penetration pricing" (Demand oriented pricing)
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Low initial price targets mass market.
May be a good strategy when: >Price sensitive buyers >Experience curve effect likely >You can discourage competitors |
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Experience curve pricing (Cost Oriented pricing)
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Price low to add volume and lower costs.
Good when: low costs can create barrier to entry, long term market prospects good |
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Standard Markup Pricing (Cost oriented pricing)
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Add percentage of cost to all items.
May be good when: impossible to estimate demand across a variety of items. |
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Menu Pricing
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Target: Aim for markup up percentages (Price=4X Cost)
Actual: prices constrained by buyer perceptions |
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Competition Oriented Pricing
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Above, At, or Below Market
>Estimate middle market price and then price with relation to it. |
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Bundling Pricing
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Marketing 2 or more products into single package price
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Prestige Pricing
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high price to attract quality concious consumers
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Odd-Even Pricing
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499.99 for a tv
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Target Pricing
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Adjusting composition/features to achieve target price to consumers
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Yield Management Pricing
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Matching supply and demand to customize price
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Price Lining
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Within a product line-different price points
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The ratio of perceived benefits to price
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As percevieved benefits increase, value increases
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Value Pricing
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The practice of simultaneously increasing product and service benefits while maintaining or decreasing price
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Reference Value
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Involves comparing the costs and benefits of substitute items
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Market share
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Ratio of a firm's sales revenues or unit sales to those of the industry
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Pure competetion
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Many sellers, price is set by marketplace for identical commodity products
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Monopolistic competetion
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Man sellers who compete on nonprice factors, emphasis on advertising to differentiate products from competitors
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Oligopoly
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Few sellers who are sensitive to each others prices.
>Informative advertising - avoiding price competition/wars |
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Pure Monopoly
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One seller who sets own price for a unique product
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Revenue:
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Total: Unit price of product*quantity sold
Average: Total revenue/quantity sold=unit price of the product Marginal: the slope of the total revenue curve |
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Elastic Demand
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Slight change in price results in a large change in demand.
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Inelastic Demand
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Changes in price don't significantly change demand. Increase revenue by increasing prices. These are things people must buy to survive (neccessities).
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The more substitues a product has...
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the more likely it is to be elastic
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Target Return
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A firm sets a goal for pretax return on investment
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Equation for factors that influence price
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Final Price=List price-(Incentives+Allowances)+Extra fees
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