M L 3250 Principles of Marketing FINAL EXAM REVIEW SHEET Chapter 10 Pricing Understanding and Capturing Customer Value 1 What is a price Define Price is a Value Judgment o It s also represents value that customer s give up to obtain their desired product and as a result products that are high in value for customers they tend to do more research and 3th party reviews before making the purchase One of the 4 P s and only P that brings the revenue Profit Equation and also serves as a strategic toll for creating and capturing customer value along building a strong customer relationship Nature of the price o Easy to change o Directly related to revenue generation quantities sold Price Symbolic Value for consumers signal to infer the quality o If too Low infer as poor quality o If too High infer as low value Price affects consumer behavior and the main price challenge is to find the price that will let the company make a fair profit by getting paid for the customer value it creates It refers to setting a price based on buyer s perceptions of value rather 2 What is a Value based Pricing Define than on the seller s cost o Customer Driven approach Two types of value based pricing are o Good value pricing quality and good service at a fair price It refers to offering just the right combination of Everyday Low Price EDLP It refers to having a constant everyday low price with few or no temporary discounts o Ex Wal mart and Cosco High Low Pricing It refers to having higher prices on an everyday basis but running frequent promotions to lower prices temporarily on selected items o Ex Kohl s and Macy o Value added pricing services to differentiate a company s offers and charging higher prices It refers to Attaching value added features and 3 What is Cost based Pricing Define It refers to setting prices based on the costs of producing distributing and selling the product plus a fair rate of return for effort and risk o Manufacturer Driven approach Two types of cost based pricing o Cost plus pricing product This pricing strategy is popular for It refers to adding a standard markup to the cost of the o Provides more certainty with costs than demand o Price competition is minimized because lot of companies follows this for its pricing strategy o Fairer to both buyers and sellers o Break even pricing target profit pricing It refers to setting a price to break even on the costs of making and marketing a product or setting price to make a target return 4 What is Competition based pricing Define It refers to setting prices based on competitors strategies prices costs and market offerings o If the market smaller higher prices competitors relative to the value they deliver lower prices The company can drive away weaker competitors by charging o If the market larger lower prices competitors The company can enter the market by exploring un served market niches w value added products at higher prices Intention capture market share Risky can easily get into price wars 5 What are Demand Curves Define A curve that shows the number of units the market will buy in a given time period at different prices that might be charged o Demand refers to customer s desire for products o Demand Curves shoes quality of a product at various prices considering other factors are held constant Vertical axis different prices Horizontal axis no of units Graph B If the price is dropped too much quality decreases people don t want it 6 What is the price elasticity of demand Define The sensitivity of customers to price changes in terms of the quantities they will buy o Elastic luxury units bought o Inelastic necessity bought Small changes in price substantial changes in the no of Large changes in price small changes in the no of units Additional Notes Determinants of Price 1 Costs both fixed and variable 2 Competition 3 Stage in product lifecycle 4 Promotion strategy 5 Perceived Value 6 Distribution strategy 7 Target market s demand What does a customer give up in order to obtain a desired product Price notes o Money o Time o Privacy Data o Effort Physical and Mental doing research o Opportunity cost Chapter 11 Pricing Strategies Additional Consideration 1 What is the difference between Market skimming pricing Market penetration pricing Market skimming pricing market Ex Apple o Define It is a strategy with high initial prices to skim revenue layers from the Product quality and image must support the price Buyers must want the product at the price Costs of producing the product in small volume should not cancel the advantage of higher prices Competitors should not be able to enter the market easily Market penetration pricing o Define It sets a low initial price in order to penetrate the market quickly and deeply attract a large number of buyers quickly to gain market share Price sensitive market Low prices must keep competition out of the market o Ex Redbox 2 What are some product mix pricing strategies o Product line pricing Setting the prices steps between various products in a product line based on cost differences between the products customers evaluations of different features and competitors prices The pricing of optional or accessory products along with a main product o Optional products o Captive products Setting price for products that must be used along with a main product such as blades for a razor and games for a video game console o By products more competitive Setting a price for by products in order to make the main product s price o Product Bundle Combining several products and offering the bundle at a reduced price 3 What is a reference prices o Define Consumers have a set price or price range in their mind Actual price is higher Actual price is low assume its quality is inferior consumers will feel the product is overpriced below the internal reference price consumers may 4 What is Price Image o Define Global impression of the overall price level of a store It imperfectly correlates with quality and price o Company may compete more on price image than price Manage through non price cues or irrelevant price cues Ex What does a Wal Mart store look like compared to a target store o Price image are sometimes wrong Not 100 accurate but affect the consumer s perceptions 5 What is difference between Everyday low pricing EDLP High Low pricing o Everyday low pricing o High Low pricing Saves search costs of finding lowest overall prices Provides the thrill of the chase for the lowest price 6 What is Odd Even pricing o Define A
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