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Pricing Concepts
ch. 14 marketing exam #2
| Term | Definition |
|---|---|
| Factors in Determining Price | Consumer Demand, Costs, Competition, Channel Partners, Company Objectives |
| Consumer Demand Factor | the consumer's willingness to pay and what value they perceive from the g/s |
| Costs Factor | understand cost structures to determine where product profits multiple concepts + vocab. to know - variable, fixed, total costs - break even analysis - markup + target return pricing |
| Variable Costs | labor + materials, varies w/ production volume |
| Fixed Costs | remains the same no matter the amount of quantity produced |
| Total Costs | sum of variable + fixed costs |
| Break Even Point | number of units sold that generates enough revenue to equal total costs break even point = fixed costs / contributions per unit contributions per unit = price - variable costs |
| Competition Factor | multiple forms of competition; make sure value is better than others 1. monopoly 2. oligopolistic - few firms dominate 3. Monopolist - many firms, one product 4. Pure price war and predatory pricing - know them |
| Channel Partners Factor | what is the relationship between the partners? partners include... - retail, website, manufacturers, wholesalers * issue arises because all partners have different opinions on pricing |
| Company Objectives Factor | what is our positioning? - answering what type of pricing orientation are we focused on ---> profit, sales, customer, competitor |
| Profit Orientation | focus on maximizing $$$ - either through pure money, specific goal, or specific return on investment - need to be very knowledgeable on product market |
| Sales Orientation | increasing sales over increasing profits - prices a product above the prices set for competing products for customers who want the best - obtain market share + work w/ channel partners |
| Competitor Orientation | measure themselves against competitors - set similar prices to competitors OR - only change prices to meet those of the competition |
| Customer Orientation | based on how it can add value to its products + services for its customers *think of the customer and what they are willing to pay |
| Elasticity of Demand | measures how changes in a price affect QD - inelastic = not much of an effect price change; essentials - elastic = affected by price change; fun items aka price sensitivity |
| Factors Affecting Elasticity | Necessity, Price Relative to Purchasing Power, Product Durability, Alternate Uses, Available Substitutes, Force of Habit |
| Necessity | is it necessary? if it is then its inelastic because you need it |
| Price Relative to Purchasing Power | income effect; change in QD because of a change in income |
| Product Durability | can i get multiple uses out it? people are willing to pay if the product will last them a while |
| Available Substitutes | can something replace it? if there is a greater availability of substitution there is a greater price elasticity |
| Force of Habit | is it hard to change or get out of? are you simply unwilling to give it up? ex: cigarrettes |
| Pricing Objectives + Strategies | Profit Oriented, Sales Oriented, Competition Oriented, or Status Quo |
| Dynamic Pricing | varying prices because of seasons, stock, etc. price changes a lot |
| New Product Pricing | includes penetration pricing + price skimming |
| Penetration Pricing | low initial price to build sales, gain market share, and scare away competitors - early share + loyalty - do not run out or customers will be mad - danger of "low cost = low quality" perception |
| Price Skimming | high price to attract innovators and early adopters; later lower price price to attract the next segment of consumers - must have a unique product or know for certain that customers will buy it no matter what - be innovative and hard to copy |
| Everyday Low Pricing (EDLP) | offers value through low costs and eliminates the search for low costs; value-provider - lower inventory management costs - less advertising needed - cost structure + mission must match ex: ALDI |
| High / Low Pricing | relies on sales / clearances where prices are temporarily low to encourage purchases - provides a thrill of the chase - attracts deal seekers + less price sensitive people - generate higher profits + full assortment of products |
| Reference Pricing | lets a customer see price vs original price to see how much they are saving / the value - TJMAXX Video |
Created by:
Zetiris
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