Pricing L7

Question 1

Why study price?

Answer 1

• One of the 4/7Ps that generates revenue, all others incur cost
• Pricing decisions are about perceived value
• Pricing decisions help with positioning in offering a way that the customer will find appropriate

Question 2

What might price mean?

Answer 2

• The amount of money required or given in exchange
• An unwelcome experience/action or penalty
• The action of deciding the amount required in payment
• The action of establishing the amount required to purchase

Question 3

What issues affect price?

Answer 3

• Organisational and marketing objectives
• Pricing objectives
• Costs
• Other marketing mix variables
• Channel member expectations
• Buyers perceptions
• Competition
• Legal and regulatory issues

Question 4

What is the cost based pricing approach?

Answer 4

Look at product and the costs it incurs, find a price, add value

Question 5

What is the value based pricing approach?

Answer 5

Look at how the customer values the product, find a price, ensure it covers costs

Question 6

What is the competitor based pricing approach?

Answer 6

Look at what competitors are charging, find a price, ensure it covers costs and that customers place enough value on the product

Question 7

What is the systematic approach to product pricing?

Answer 7

Pricing objectives –> Assess target price evaluation and purchase availability –> Determine demand –> Cost and profit relationship –> Evaluate competitors’ price –> Select pricing policy –> Select price method –> Determine specific price

Question 8

What are examples of pricing objectives?

Answer 8

• Make a profit
• Break even
• Make a loss to screw up competition

Question 9

What are the pricing trade offs of having a low price?

Answer 9

If the price is too low, customer will be happy and sales will rise but there might be no money for promotion which could reduce sales and limit profitability as well as create a cheap product perception

Question 10

What are the pricing trade offs of having a high price?

Answer 10

If the price is high the customer might be unhappy and sales fall but the retailer will be happy and give more shelf space causing sales to rise. There will be better product perception but price may be higher than competition. Although a higher price gives opportunity for R&D

Question 11

What is the cost profit relationship?

Answer 11

As price increases, break even point happens at a lower quantity

Question 12

What is price skimming?

Answer 12

Charging a high initial price and then lowering it over time

Question 13

What are the advantages to price skimming?

Answer 13

• Recover R&D costs more quickly
• Quick cash flow
• High price may signify high quality

Question 14

What are the disadvantages to price skimming?

Answer 14

• Market share growth is low

- Profits may attract competition

Question 15

What is penetration pricing?

Answer 15

Starting at a low price to entice customers and eventually increasing it

Question 16

What are the advantages of penetration pricing?

Answer 16

• Build market sahre
• Gets economies of scale
• Discourages competition
• Stimulates brand loyalty

Question 17

What are the disadvantages of penetration pricing?

Answer 17

• Longer time to recover costs

- Possible cash flow problem

Question 18

What are the possible pricing approaches?

Answer 18

Premium
Freemium
Penetration
Skimming
Competition
Product Line
Bundle
Psychological
Complementary products