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29 Cards in this Set
- Front
- Back
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Creaming (Skimming) Pricing |
High price during intro period -- Can recoup initial costs -- Few substitutes / Unique / Glamorous -- Need to reduce once there's competition |
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Demand Pricing |
Max Profit Based on Demand - Demand Curve to find opt price - Can adapt quickly, but requires a lot of price changes |
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Every-Day Low Price |
Constantly low for price sensitivity - Can't lower prices more to boost sales |
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Going Rate |
Aligns price with competitors -- No guarantee the industry is right, consumers may pay more |
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Market / Cost Plus Pricing |
Arbitrary % to unit cost |
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Calculate Unit Cost |
(Variable cost) + (Fixed cost) ---------------------- (Unit sales) |
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Penetration pricing |
Set low to attract new customers and build market share A: Can quickly grab market share in new areas D: rarely results in high profitability. Could set too low to recoup costs |
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Prestige pricing |
Set high to signal high quality A: communicates value D: Vigilant to ensure high brand equity, differentiation |
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Target return pricing |
Set to achieve ROI A: simple D: Doesn't take into account market value |
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Target return pricing calcuation |
(Unit Cost) + (Target ROI) * (Investment) -------------- (Unit Sales) |
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Tiered pricing |
Different price points to show features / quality A: can charge for extra features D: Can take skilled sales person to explain added value for each tier |
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Value in Use pricing |
Based on value to customer A: can extract max value for product D: hard to calculate the VIU price |
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Method for calculating value in use pricing |
1) calculate total annual current cost for the product / service. (Parts, Labor, Life, Quantity) (Parts cost) + (Labor cost) * (Changes per year) + amount of products required 2) calculate VIU pricing Solve for VIU -- |
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Variant Pricing |
Different prices for different variants A: extract higher prices than if charge same price D: must stock many variants to fit many needs |
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5 steps of Break Even Pricing Technique |
1) Calculate fixed cost
2) Calc variable cost 3) Calc unit cost 4) Select Price to Assess 5) Calc break-even |
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Break Even Calculation |
(Fixed Cost) -------------------- (Price - Unit Cost) |
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Net Present Value |
summarizes stream of future cash flows into a single number |
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5 steps of NPV capital budget model |
1) Determine initial investment 2) Select Price to Assess 3) Forecast Unit Sales 4) Calculate Cash Flows 5) Calculate Net Present Value |
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NPV Capital budget calculation |
Cash Flow ------------------------------------ 1+interest rate raised to the power of the year Then, Do this for every year and add them together |
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Main difference between NPV and IRR capital budgeting methods |
Identical, except in IRR instead of being giving a Rate of Return to exceed, we're given an actual Rate of Return. Instead of determining if NPV is greater than zero, we set NPV to zero and solve for the interest rate |
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Main similarities with NPV and IRR budgeting methods |
Companies can apply either to test the financial feasibility of new product and services, or enhancements to existing ones, based on the price we wish to test |
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Advantage of IRR vs. NPV |
IRR calculates the actual rate of return. The NPV only returns a go / no-go decision |
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Calculate Elasticity |
(Percentage change in quantity demanded) / (Percentage change in price) Or [(Q2-Q1)/Q1] / [(P2-P1)/P1] |
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Define Elastic Demand |
Consumers are highly influenced by Price |
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Define Inelastic Demand |
Consumers purchase regardless of price |
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Demand curves help calculate what |
Optimal Price |
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3 B2B Pricing Techniques |
Cost Plus - % to cost Channel-Driven - "going rate" Value-Based - set premium for differentiation |
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5 business pricing models |
1) Auction-Based - used products 2) Enterprise Perpetual License - "all you can use" 3) Per-System - instances of installed product 4) Per-User - # of people 5) Shared-Benefit - charge on % of benefit used 6) Usage-Based |
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Price Discrimination Applications |
Channel Demographic Geographic Occupational Quantity Temporal (time) |
