Mkt Exam 2 11.05.12 Price

Front 1

4 common pricing objectives

Back 1

1. Survival (as long as money covers fixed costs--short run obj)

2. Maximize profit-what everyone aims for (but miss at marketshare and innovation)

3. Max market share-highest sales volume, lower price..cost per unit?

4. Max market simming-new technique, price very high and then drop over time..Sony HDTV

Front 2

3 kinds of surplus

Back 2

1. Producer surplus

2. Consumer surplus

3. Unrealized surplus

Front 3

How can we increase producer surplus

Back 3

lower variable costs (but may lose quality) and willingness to pay

Increase price (price discrimination...find people willing to pay a lot)..or increase perceived value and price

Front 4

Image Pricing

Back 4

Increasing price to attract price-insensitive customers, without increase quality!

Front 5

Price Discrimination (definition and 4 degrees)

Back 5

Define: selling a product/service at two or more prices that do not completely reflect difference in costs

1st: seller charges each buyer their max willingness to pay (not feasible but ideal)

2nd: seller charges less to buyers who buy in bulk (sell more)

3rd: seller charges different amounts to different classes of buyers (often based on willingness or ability to pay)--less charge for students and elderly..or maybe targeting diff people at outlet...or amazon changing prices on products through day

Front 6

Periodic discounting

Back 6

periotic = predictable....black friday

Front 7

Random discounting

Back 7

unpredictable

Discourages people with high willingness to pay from waiting for sales (if you don't know, not patient)

People with lower WTP can still et low prices, they just have to wait and watch

ASK ZAGLIA WHICH DISCOUNT PREFERRED

Front 8

Product line pricing

Back 8

Establish a line of related products that vary in quality and price--extract greater surplus from less price sensitive customers--young, price sensitive customers can get in t the ground floor, and trade up when income increase..like bank and my checking account

Front 9

Premium pricing

Back 9

Offering high-end items for price insensitive customers..first class seats

Front 10

Endogenous price discrimination

Back 10

Panera and pay what you want

Front 11

If raise price, demand goes

Back 11

down

Front 12

Estimating demand curves (3)

Back 12

1. Quantitative analysis of past prices, quantity sold (looking at all data)

2. Surveys: how likely you buy at certain prices (people may lie though)---strategic responding possible so lie

3. Price experiments (every 10th customer gets coupon for percent off)

Front 13

Price elasticity of demand

Back 13

Percent change in qty demand/percent change in price

typically negative..if raise price, demand will drop...vice versa

we want inelastic product! if so, PED will be slightly negative and we can play with price more without losing customers

Front 14

5 factors leading to less price sensitivity

Back 14

1. When buyers are less aware of substitutes (won't search for something else, but internet makes easier)..or buyers not able to search for subs

2. The purchase is small compared to buyer's income/budget

3. Part of cost is borne by another party (if part of cost is paid by someone else)

4. Prestige products (high end)

5. Stable individual differences (tightwads and spendthrifts)

Front 15

Tightwads

Spendthrifts

Back 15

Chronically find spending money painful

Don't find spending money painful enough

Front 16

Pain can be reduced by reducing perceived

Back 16

price magnitude..."small 5 dollar fee"

Front 17

Price bundling (other price tactics know)

Back 17

the sale of two or more separate products in one package at a discount

1. Pure bundling (component goods only offered otgether..like dinner)

2. Mixed bundling-component goods offered as a package or separately (season tickets)

Value of bundle equal to total value of its parts (bundle of DVDs worth the bunch of DVDs but doesn't work with cars)

Front 18

Complementary pricing (other price tactics know)

Back 18

Low balling the price of one item in tandem with other...razor blades and starbucks thing

Related to loss leader pricing (offer good at or below cost to entice customers to come in and buy other, higher margin goods---often perishable like milk..far away from store entrance)..checking account is another example

Front 19

Competitive pricing (other price tactics know)

Back 19

Using price to steal share (rather than increase surplus)

Front 20

2 rationales for competitive pricing

Back 20

1. Penetration pricing (get into market and then raise later)..set price low, perhaps below UVC, to dive into market..plan to raise it later

2. Experience curve pricing (set price low, plan to keep it low, based on expectation that company will learn how to operate more efficiently)--hard to distinguish from outside

Front 21

Markup pricing (other price tactics know)..most simple

Back 21

Adding a markup to products cost
ignores current demand, competition, perceived value
Cost easier to determine than demand (makes easier to calculate)
Despite non-optimality, remains popular

Front 22

Two websites offer same products (power of free)

Back 22

Website B, even as 5 dollars total, gets more purchases because no shipping cost..its free!

Front 23

3 insights from research on perceived price fairness

Back 23

Acceptable for a firm to raise prices when profits are threatened

Also fine to maintain prices when costs decrease

Unfair to exploit shifts in demand by raising prices (actually illegal for pricing gouging after emergency)

Front 24

3 insights help to explain a variety of pricing patterns in market

Back 24

Prices are often maintained during disasters (when supplies limited)

Price changes are more responsive to increases in costs than increases in demand

Price changes are more responsive to cost increases than to cost decreases

Front 25

Giving a reason

Back 25

any explanation fine