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Pricing Strategies and Concepts
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Pricing Strategies and Concepts
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What is price?
Price is the amount of money charged for a product or service. It is the sum of all the values that consumers give up in order to gain the benefits of having or using a product or service.
What is unique about price in the marketing mix?
Price is the only element in the marketing mix that produces revenue; all other elements represent costs.
What is effective customer-oriented pricing?
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 that value.
How does pricing affect a product's image in consumers' eyes?
The pricing of a product affects the image of the product in consumers' eyes; high prices are often perceived to indicate high quality.
What are the three major pricing strategies?
1. Customer value-based pricing 2. Cost-based pricing 3. Competitive-based pricing.
What is value-based pricing?
Value-based pricing uses the buyers' perceptions of value, not the sellers' cost, as the key to pricing. Price is considered before the marketing program is set.
What is good-value pricing?
Good-value pricing offers the right combination of quality and good service at a fair price.
What is everyday low pricing (EDLP)?
Everyday low pricing (EDLP) involves charging a constant everyday low price with few or no temporary price discounts.
What is high-low pricing?
High-low pricing involves charging higher prices on an everyday basis but running frequent promotions to lower prices temporarily on selected items.
What is value-added pricing?
Value-added pricing attaches value-added features and services to differentiate offers, support higher prices, and build pricing power.
What does cost-based pricing involve?
Cost-based pricing involves setting prices based on the costs for producing, distributing, and selling the product plus a fair rate of return for its effort and risk.
What are the types of costs in cost-based pricing?
1. Fixed costs 2. Variable costs 3. Total costs.
What are fixed costs?
Fixed costs are the costs that do not vary with production or sales level, such as rent, heat, interest, and executive salaries.
What are variable costs?
Variable costs are the costs that vary with the level of production, such as packaging and raw materials.
What are total costs?
Total costs are the sum of the fixed and variable costs for any given level of production.
What is average cost?
Average cost is the cost associated with a given level of output.
What does competitive-based pricing allow a firm to do?
Competitive-based pricing allows a firm to consider the price of competing products before setting the initial price.
What are the types of market structures that affect pricing?
1. Pure competition 2. Monopolistic competition 3. Oligopolistic competition 4. Pure monopoly.
What is pure competition?
Pure competition is a market with many buyers and sellers trading uniform commodities where no single buyer or seller has much effect on market price.
What is monopolistic competition?
Monopolistic competition is a market with many buyers and sellers who trade over a range of prices rather than a single market price with differentiated offers.
What is oligopolistic competition?
Oligopolistic competition is a market with few sellers because it is difficult for sellers to enter, who are highly sensitive to each other's pricing and marketing strategies.
What is pure monopoly?
Pure monopoly is a market with only one seller. In a regulated monopoly, the government permits a price that will yield a fair return. In a non-regulated monopoly, companies are free to set a market price.
What are the factors to consider when setting prices?
Factors include: 1. Unique product 2. Quality 3. Prestige 4. Substitute products 5. Cost relative to income.
What external factors affect price decisions?
External factors affecting price decisions include: 1. Economic conditions 2. Resellers' response to price 3. Government 4. Social concerns.
What is market skimming pricing?
Market skimming pricing is a strategy with high initial prices to skim revenue layers from the market, requiring product quality and image to support the price.
What is market penetration pricing?
Market penetration pricing sets a low initial price to penetrate the market quickly and deeply to attract a large number of buyers quickly to gain market share.
What is product line pricing?
Product line pricing takes into account the cost differences between products in the line, customer evaluation of their features, and competitors' prices.
What is optional product pricing?
Optional product pricing takes into account optional or accessory products along with the main product, such as handphone accessories.
What is captive product pricing?
Captive product pricing involves products that must be used along with the main product.
What is by-product pricing?
By-product pricing refers to products with little or no value produced as a result of the main product, where producers seek little or no profit other than the cost to cover storage and delivery.
What is product bundle pricing?
Product bundle pricing combines several products at a reduced price.
What pricing strategy is used when a company faces the challenge of setting prices for new products?
Companies bringing out new products face the challenge of setting prices for the first time, often considering market-skimming pricing and market penetration pricing.
What is the purpose of market-penetration pricing?
The purpose of market-penetration pricing is to set a low initial price in order to attract a large number of buyers quickly and win a large market share.
What are the conditions that support market-penetration pricing?
Conditions that support market-penetration pricing include: 1. The market must be highly price sensitive 2. Production and distribution costs must fall as sales volume increases 3. The product's quality and image must support the price 4. The low price must help keep out the competition.
When Kodak sets the general price range of its cameras low and its related film high, what pricing strategy is it practicing?
Kodak is practicing product line pricing.
What are the types of pricing strategies listed in the text?
Pricing strategy descriptions include product line strategy, optional-product pricing, captive-product pricing, by-product pricing, and product bundle pricing.
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