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Pricing

question
The Nature of Price
answer
-It's directly related to revenue generation and quantities sold
-Key component to profit equation
-Relatively easy to change
question
Price as a Signal
answer
Prices can be either too low (signaling poor quality) or too high (signaling low value).
question
Why is Pricing Important?
answer
-only aspect of marketing mix that directly generates revenue
-price is one of most important factors influencing purchase decisions
-difficult to manage (usually it's an afterthought, but should be strategic)
question
What is Price?
answer
Overall value consumers are willing to exchange or sacrifice to acquire a product, can be monetary (price, tax, shipping) or nonmonetary (time, effort, opportunity costs).
question
Demand Curves
answer
Show how much customers will buy at different prices (assuming all else remains same). Demand increases as price decreases. Usually downward sloping.
question
Upward-Sloping Demand Curves
answer
Often this occurs for prestige products due to perceived quality, status, and exclusivity conveyed by price.
question
Price Elasticity
answer
Sensitivity of customers to price changes in terms of the quantities they will buy. Consumers more sensitive to price increase than decrease (easier to lose customers when increasing price than it is to gain customers by lowering price).
question
Elastic
answer
Sensitive to price change (small change in price creates a large change in units sold). Flatter slope demand curve.
question
Inelastic
answer
Insensitive to price change (large change in price creates a small change in units sold). Steep sloping demand curve.
question
Value-Based Pricing
answer
Setting price based on customers' value of product or service (1. assess customer needs and value perceptions, 2. set target price to match perceived value, 3. determine costs that can be incurred, 4. design product to deliver desired value at target price). Customer driven approach!
question
Cost-Based Pricing
answer
Setting prices based on the costs of producing, distributing, and selling the product (1. design good product, 2. determine product costs, 3. set price based on costs, 4. convince buyers of product's value). Manufacturer driven approach!
question
Competition-Based Pricing
answer
Setting prices based on competitors' strategies, prices, costs, and market offerings. It's typically intended to capture market value. Can be risky (price wars).
question
When Setting a Price...
answer
1. What value do your customers place on your offering? No one cares about your costs!
2. Is there variation in the way customers value your offering?
1 of 13
question
The Nature of Price
answer
-It's directly related to revenue generation and quantities sold
-Key component to profit equation
-Relatively easy to change
question
Price as a Signal
answer
Prices can be either too low (signaling poor quality) or too high (signaling low value).
question
Why is Pricing Important?
answer
-only aspect of marketing mix that directly generates revenue
-price is one of most important factors influencing purchase decisions
-difficult to manage (usually it's an afterthought, but should be strategic)
question
What is Price?
answer
Overall value consumers are willing to exchange or sacrifice to acquire a product, can be monetary (price, tax, shipping) or nonmonetary (time, effort, opportunity costs).
question
Demand Curves
answer
Show how much customers will buy at different prices (assuming all else remains same). Demand increases as price decreases. Usually downward sloping.
question
Upward-Sloping Demand Curves
answer
Often this occurs for prestige products due to perceived quality, status, and exclusivity conveyed by price.
question
Price Elasticity
answer
Sensitivity of customers to price changes in terms of the quantities they will buy. Consumers more sensitive to price increase than decrease (easier to lose customers when increasing price than it is to gain customers by lowering price).
question
Elastic
answer
Sensitive to price change (small change in price creates a large change in units sold). Flatter slope demand curve.
question
Inelastic
answer
Insensitive to price change (large change in price creates a small change in units sold). Steep sloping demand curve.
question
Value-Based Pricing
answer
Setting price based on customers' value of product or service (1. assess customer needs and value perceptions, 2. set target price to match perceived value, 3. determine costs that can be incurred, 4. design product to deliver desired value at target price). Customer driven approach!
question
Cost-Based Pricing
answer
Setting prices based on the costs of producing, distributing, and selling the product (1. design good product, 2. determine product costs, 3. set price based on costs, 4. convince buyers of product's value). Manufacturer driven approach!
question
Competition-Based Pricing
answer
Setting prices based on competitors' strategies, prices, costs, and market offerings. It's typically intended to capture market value. Can be risky (price wars).
question
When Setting a Price...
answer
1. What value do your customers place on your offering? No one cares about your costs!
2. Is there variation in the way customers value your offering?
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