Pricing decisions – Flashcards
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Effects of excessive price cuts
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It can cheapen a brand by signaling to customers that price is more important than the customer value a brand delivers
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Price
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In the narrowest sense, price is the amount of money charged for a product or a service.
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Price in the marketing mix
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Only element in the marketing mix that produces revenue,all other elements represent costs
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Why price is the most flexible marketing mix elements
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Unlike product features and channel commitments, prices can be changed quickly
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Importance of pricing
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Managers can use pricing as a key strategic tool for creating and capturing customer value. Prices have a direct impact on a firm's bottom line. A small percentage improvement in price can generate a large percentage increase in profitability. Price plays a key role in creating customer value and building customer relationships
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Ceiling for prices
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Customer perceptions of the product's value set the ceiling for prices
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Floor for prices
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Product costs set the floor for prices
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What is involved in effective, customer-oriented pricing?
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Effective, customer-oriented pricing involves understanding how much value consumers place on the benefits they receive from the product and setting a price that captures this value.
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Customer value-based pricing
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Customer value-based pricing uses buyers' perceptions of value, not the seller's cost, as the key to pricing.
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Value-based pricing
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Value-based pricing means that the marketer cannot design a product and marketing program and then set the price. Price is considered along with all other marketing mix variables before the marketing program is set
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Cost-based pricing is often
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product driven.
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Cost-based pricing
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The company designs what it considers to be a good product, adds up the costs of making the product, and sets a price that covers costs plus a target profit. Marketing must then convince buyers that the product's value at that price justifies its purchase. If the price turns out to be too high, the company must settle for lower markups or lower sales, both resulting in disappointing profits.
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Value-based pricing
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The company first assesses customer needs
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Good-value pricing strategies
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offering the right combination of quality and good service at a fair price
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Instead of price cutting
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companies adopt value-added pricing strategies. Rather than cutting prices to match competitors, they attach value-added features and services to differentiate their offers and thus support higher prices
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Cost-based pricing involves
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setting prices based on the costs for
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Competition-based pricing involves
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setting prices based on competitors' strategies, costs,
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No matter what price you charge high, low, or in-between, be certain to give customers
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superior value for that price
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Use of pricing
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Pricing may play an important role in helping to accomplish company objectives at many levels. A firm can set prices to attract new customers or profitably retain existing ones.
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Price decisions must be coordinated
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with product design, distribution, and promotion decisions to form a consistent and effective integrated marketing program.
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Often, the best strategy is not to charge the lowest price
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but rather differentiate the marketing offer to make it worth a higher price
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Under pure competition
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the market consists of many buyers and sellers trading in a uni-
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Under monopolistic competition
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the market consists of many buyers and sellers who trade over a range of prices rather than a single market price. A range of prices occurs because sellers can differentiate their offers to buyers. Sellers try to develop differentiated offers for different customer segments and, in addition to price, freely use branding, adver-
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Under oligopolistic competition
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the market consists of a few sellers who are highly sensitive to each other's pricing and marketing strategies. Because there are few sellers, each seller is alert and responsive to competitors' pricing strategies and moves.
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Other External Factors
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Beyond the market and the economy, the company must consider several
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marketing mix. It is the only marketing mix element that produces revenue
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all other elements represent costs. More importantly, as a part of a company's overall value proposition, price plays a key
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important internal and external factors affecting a firm's pricing decisions
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Other internal factors that influence pricing decisions include the company's overall marketing strategy, objectives, and marketing mix, as well as organizational considerations. Price is only one element of the company's broader marketing strategy. If the company has selected its target market and positioning carefully, then its marketing mix strategy, including price, will be fairly straightforward. Some companies position their products on price and then tailor other marketing mix decisions to the prices they want to charge. Other companies deemphasize price and use other
