Pricing Strategy

Question 1

What is pricing strategy?

Answer 1

• involves making decisions on how best to price

1. is a key factor in producing revenue for a firm
2. prices are the easiest of all marketing mix variables to change
3. Considered the only real means of differentiating in mature markets plagued by commoditization
4. Is amongst the most complex decisions to be made in developing a marketing plan

Question 2

What are the factors that determine pricing strategy?

Answer 2

• firm aims
• consumer expectations
• competitors actions
• other environment factors

Question 3

What are some key issues in pricing strategy?

Answer 3

1. Consumers expectations and perceptions(psychological effects)
   - what makes consumers more sensitive to prices?
2. Pricing objectives
3. The firms cost structure
4. Competition and industry structure
   - number and type of competitors and degree of regulation on prices
5. Stage of the product life cycle
   - how does it affect pricing decisions?
6. Promotion and distribution
7. Demographic factors: number of potential buyers, location, position, expected consumption rates and economic strength of potential buyers.

Question 4

What are some examples of pricing objectives?

Answer 4

1. Increase sales revenue or market share
2. Volume-oriented
3. Cash flow
4. Maximize profit or margins
5. Differentiate from matching competitors
6. Keep the customer satisfied
7. Enhance the image of your product

Question 5

With respect to pricing, what do sellers tend to do?

Answer 5

• inflate prices because they want to receive as much as possible in an exchange
• must consider four key issues in pricing strategy:
  1. Costs
  2. Demand
  3. Customer value
  4. Competitors prices
• have increased power of buyers when certain products are in short supply, in high demand or during good economic times

Question 6

With respect to pricing, what do buyers tend to do/behave?

Answer 6

• often see prices as lower than marketing reality dictates
  -must consider two key issues:
  1. Perceived value
  2. Price sensitivity
• consider value as the ratio of benefits to cost
• have increased power over sellers when:
  Economy is weak, product information is easy to obtain, when price comparison between products are easy to make

Question 7

What are some assumptions about price cutting?

Answer 7

• increase sales, moves excess inventory, generate short term cash flow
• based in two pricing myths: when business is good, price cut captures market share,- when business is bad, price cut will simulate sales
• risky, due to each price cut has to achieve increase in sales volume to maintain gross margin
• often better of if can find ways to build value and then justify higher price

Question 8

What are the pricing strategies in consumer markets?

Answer 8

1. Base pricing strategies:
   - market introduction pricing (skimming and penetration)
   - prestige pricing
   - value-based pricing
   - competitive matching
   - non-price strategies (emphasis other attributes)

2. Adjusting pricing:
Meeting the buyers expectation by...
- promotional discounting 
- reference pricing 
Psychological price strategies...
- odd even pricing 
- price bundling

Question 9

Distinguish between price skimming and penetration?

Answer 9

1. Skimming:
   - high marginal costs of production
   - large lead time
   - when price sensitivity is low in intro stage
   - when product is radically new
   - when ease of imitation is low
   - when product has high quality image
2. Penetration
   - when marginal costs of production are low
   - when lead time is short
   - when price sensitivity is high
   - when product isnt very new
   - ease of imitation is high
   - when awareness and acceptance are low
   - when trial is highly correlated with repeat purchases
   -

Question 10

What situations decrease price sensitivity?

Answer 10

• lack of substitutes
• real or perceived necessities
• complementary products price go down
• products had highly differentiated from competition
• customers believe product to be worth the price
• customers are in certain situations associated Richard task with time pressure or purchase risk

Question 11

What situations increase price sensitivity?

Answer 11

• when substitute products are highly available
• when the total expenditure is high
• when changes in price are noticeable to customers
• when price comparison is competing products is easy for customers

Question 12

What is price discrimination?

Answer 12

• setting different prices to different customers for the same products
• movie tickets, transport, quantity discounts, promotion and coupons, international markets.

Question 13

What are organizational markets?

Answer 13

• B2B or B2O

- businesses, government bodies, institutions, organizations

Question 14

What are the characteristics of business markets?

Answer 14

• number of players: usually few sellers and buyers
• business transactions: less frequent, larger batches, complex negotiations and many interactions
• a lot of knowledge from representatives and actors
• buyers are heterogenous
• decisions go beyond physical properties combining quality, delivery, stability, service and trust and relationships.

Question 15

What are some pricing strategies in business markets?

Answer 15

1. Trade discounts: reduce price for certain intermediaries, based in function
2. Discounts and allowances
3. Geographic pricing: quotes based on transportation costs or distance
4. Transfer pricing: pricing based on one unit in an organization selling products to another unit
5. Barter and countertrade: making payments in goods, services rather than cash
6. Price discrimination

Question 16

What is straight rebuy?

Answer 16

• when there is a continuing or recurring requirement
• substantial experience
• evaluation of alternatives is unnecessary

Question 17

What is modified rebuy?

Answer 17

• when buyers expect significant benefits from re-evaluating alternatives, so it is worthwhile to obtain more information
• new forms of relationships
• new ways if delivery
• new ways of making payment

Question 18

What is new task?

Answer 18

• when need is perceived as totally different from their previous experience
• they have to engage in extensive problem solving
• lack well defined criteria for comparing alternative products, resort to making judgement and require more Information (new product line)

Question 19

What are the steps of buying in business markets?

Answer 19

1. Identifying and surveying sources of supply
2. Contacting suppliers
3. Evaluating suppliers
4. Negotiating
5. Decision

Question 20

What are the negotiating criteria a based on?

Answer 20

• discounts and allowances
• quantity:
• related to cost structure of supplier
• economies of scale
• operating capital tied up
• stock control issues
• based in value or volume sales
• cumulative or non cumulative

Question 21

What is service pricing?

Answer 21

• it is critical because price may be the only cue to quality in advance of purchase
• becomes a key issue in balancing supply and demand during peak and off peak demand times
• yield management allows the company to simultaneously control capacity and demand
  ( control capacity, by limiting available capacity at certain price points, control demand through price change , also allows firms to segment markets based on price elasticity)

Question 22

What are some major legal and ethical issues in pricing?

Answer 22

• price discrimination
• price fixing
• predatory pricing
• deceptive pricing