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20 Cards in this Set
- Front
- Back
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How does the internet change the pricing environment? |
By providing information |
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What are reference prices? |
Prices of products compared with internal references (we remember from purchasing in the past in other stores that we use to compare to see if this product is a good deal or not) vs. external reference (sales tags and retail prices posted in the store) |
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What is meant by price quality inferences? |
For luxurious products we don't know much about, we use price as an indicator of quality (a good diamond ring is more expensive) |
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How do price endings affect consumer psychology? |
Makes consumer think 2.99 is in the 2$ price range
Makes them think it's discounted
Higher end retail stores should avoid using .99 at the end |
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How many price points/tiers do most markets have? |
3-5 |
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What are the 6 steps of setting the price? |
Select price objective Determine demand Estimate costs Analyze competitor's costs, price, & offers Select pricing method Select final price |
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What are 5 different pricing objectives? |
Survival (cover variable and some fixed costs; short term strategy)
Maximum current profit
Maximum market share (set lowest cost to penetrate the market assuming it is price sensitive; lowers unit costs & provides higher profit in the long run)
Maximum market skimming: price starts high then slowly decreases.
Product quality leadership: price high enough but not too far out of the consumer's reach |
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When does maximum market skimming make sense as a pricing objective? |
1) When the demand is high 2) Unit costs are high enough 3) High initial price doesn't attract more competitors 4) High price communicates high quality |
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How do you determine demand? |
Determine price sensitivity of consumers (not sensitive if it is cheap, rare, slow to change buying habits, think high price is justified, have little no competitors)
Estimate demand curves through surveys, price experiments, and statistical analysis
Determine price elasticity of demand |
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Inelastic demand vs. elastic demand |
Inelastic demand price change greatly affects demand
Elastic demand price change minorly affects demand |
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What are the different kinds of cost? |
Fixed Variable Total Average Fluctuating cost at different levels of production |
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What is target costing? |
Target cost = price - desired profit margin
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What are the 6 different pricing methods? Describe each. |
1) Markup pricing: add standard markups regardless of demand
2) Target return pricing: pick the price that gives you your target rate of return
3) Pricing product higher; identifying & delivering superior quality
4) Value pricing: cutting costs in the company in order to deliver cheap prices of good quality
5) Going rate pricing: pricing the same in a monopolistic industry
6) Auction type pricing: price fluctuates from item to item? |
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What is the break even point? |
The intersection on a graph between total cost and total revenue.
Just enough $ to cover your expenses |
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Effects of geographical pricing? |
Prices vary by location because of shipping costs, currency, cost of living, economy, and demand |
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What are the 5 different types of discounts? |
Discount: for students; for defective/used products; for paying early
Quantity discount: for buying a large amount (Costco) & buy 3 get 1 free
Functional discount: if the channel member performs certain additional tasks
Seasonal discount
Allowance (promotional for cars for example) |
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What are 8 promotional pricing tactics? |
Loss leader pricing: sell product @ loss to bring customers into the store
Special event pricing: to draw in customers (back to school, boxing day)
Special customer pricing: members of the co op to keep customer loyalty
Cash rebates: give cash back but not discount the product
Low interest financing
Longer payment terms
Warranties and service contracts: provides added benefit to the customer
Psychological discounting: setting price psychologically high and saying there's a huge discount on it |
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What are 6 forms of differentiated pricing? |
Customer segment pricing: student and senior discounts
Product form pricing: large bottle of water not proportional to small bottle of water
Image pricing: same product packaged differently/different brand name (Old Navy and Gap)
Channel pricing: depends on where you're buying the product: movie theater, airport, etc.
Location pricing: seats for a concert
Time pricing: going to the movies in the morning |
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What are 4 methods of increasing prices? |
1) Delayed quotation pricing (do not set price until the product is finished/delivered)
2) Escalator clauses (must pay today's price and any inflation that occurs in the meantime)
3) Unbundling (pricing one of the components/features separately ex. audio system of car)
4) Reduction of discounts (normal discount not applicable to certain products) |
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What are 3 brand leader responses to low cost competitors? |
1) Further differentiate the product/service 2) Introduce low cost venture (cheaper product without altering current product) 3) Reinvent as a low cost player (change your image) |
