Chapter 10: Pricing: Understanding and Capturing Customer Value

question

price

answer

is the amount of money charged for a product or service, or the sum of all the values that customers exchange for the benefits of having or using the product or service.

question

value-based pricing

answer

uses the buyers' perceptions of value rather than the seller's cost.
• Value-based pricing is customer driven.
• Cost-based pricing is product driven.
• Price is set to match perceived value.

question

Good-value pricing

answer

is offering just the right combination of quality and good service at a fair price.

question

everyday low pricing (EDLP)

answer

involves charging a constant everyday low price with few or no temporary price discounts.

question

high/low pricing

answer

involves charging higher prices on an everyday basis but running frequent promotions to lower prices temporarily on selected items.

question

Value-added pricing

answer

attaches value-added features and services to differentiate the companies offers and thus their higher prices.

question

cost-based pricing

answer

sets prices based on the costs for producing, distributing, and selling the product plus a fair rate of return for effort and risk.

question

fixed costs

answer

are the costs that do not vary with production or sales level.
• Rent
• Heat
• Interest
• Executive salaries

question

variable costs

answer

vary directly with the level of production.
• Raw materials
• Packaging

question

total costs

answer

are the sum of the fixed and variable costs for any given level of production.

question

cost-plus pricing

answer

adds a standard markup to the cost of the product.
• Benefits
- Sellers are certain about costs.
- Price competition is minimized.
- Buyers feel it is fair.

• Disadvantages
- Ignores demand and competitor prices

question

Break-even pricing (target return pricing)

answer

is setting price to break even on costs or to make a target return.

question

competition-based pricing

answer

is setting prices based on competitors' strategies, costs, prices, and market offerings.

question

target costing

answer

starts with an ideal selling price based on consumer value considerations and then targets costs that will ensure that the price is met.

question

organizational considerations

answer

• Who should set prices?
• Who can influence prices?

question

the market and demand

answer

Before setting prices, the marketer must understand the relationship between price and demand for its products.

question

Pricing in Different Types of Markets

answer

1. Pure competition
2. Monopolistic competition
3. Oligopolistic competition
4. Pure monopoly

question

Analyzing the Price-Demand Relationship

answer

The demand curve shows the number of units the market will buy in a given period at different prices
• Demand and price are inversely related.
• Higher price = lower demand

question

price elasticity

answer

is a measure of the sensitivity of demand to changes in price.

question

inelastic demand

answer

is when demand hardly changes with a small change in price.

question

elastic demand

answer

is when demand changes greatly with a small change in price.

question

The Economy and Other External Factors

answer

• Economic conditions
• Reseller's response to price
• Government
• Social concerns

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question

price

answer

is the amount of money charged for a product or service, or the sum of all the values that customers exchange for the benefits of having or using the product or service.

question

value-based pricing

answer

uses the buyers' perceptions of value rather than the seller's cost.
• Value-based pricing is customer driven.
• Cost-based pricing is product driven.
• Price is set to match perceived value.

question

Good-value pricing

answer

is offering just the right combination of quality and good service at a fair price.

question

everyday low pricing (EDLP)

answer

involves charging a constant everyday low price with few or no temporary price discounts.

question

high/low pricing

answer

involves charging higher prices on an everyday basis but running frequent promotions to lower prices temporarily on selected items.

question

Value-added pricing

answer

attaches value-added features and services to differentiate the companies offers and thus their higher prices.

question

cost-based pricing

answer

sets prices based on the costs for producing, distributing, and selling the product plus a fair rate of return for effort and risk.

question

fixed costs

answer

are the costs that do not vary with production or sales level.
• Rent
• Heat
• Interest
• Executive salaries

question

variable costs

answer

vary directly with the level of production.
• Raw materials
• Packaging

question

total costs

answer

are the sum of the fixed and variable costs for any given level of production.

question

cost-plus pricing

answer

question

Break-even pricing (target return pricing)

answer

is setting price to break even on costs or to make a target return.

question

competition-based pricing

answer

is setting prices based on competitors' strategies, costs, prices, and market offerings.

question

target costing

answer

starts with an ideal selling price based on consumer value considerations and then targets costs that will ensure that the price is met.

question

organizational considerations

answer

• Who should set prices?
• Who can influence prices?

question

the market and demand

answer

Before setting prices, the marketer must understand the relationship between price and demand for its products.

question

Pricing in Different Types of Markets

answer

1. Pure competition
2. Monopolistic competition
3. Oligopolistic competition
4. Pure monopoly

question

Analyzing the Price-Demand Relationship

answer

The demand curve shows the number of units the market will buy in a given period at different prices
• Demand and price are inversely related.
• Higher price = lower demand

question

price elasticity

answer

is a measure of the sensitivity of demand to changes in price.

question

inelastic demand

answer

is when demand hardly changes with a small change in price.

question

elastic demand

answer

is when demand changes greatly with a small change in price.

question

The Economy and Other External Factors

answer

• Economic conditions
• Reseller's response to price
• Government
• Social concerns

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Chapter 10: Pricing: Understanding and Capturing Customer Value

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