Pricing the product

30 important questions on Pricing the product

What are the 6 steps in price planning?

- Develop price objectives
- Estimate Demand
- Determine Costs
- Evaluate the pricing environment
- Choose a pricing strategy
- Develop pricing Tactics

What are the 4 pricing objectives?

- Sales or market share: to increase sales
- Competitive effect objectives: the pricing plan is intended to have a certain effect on the competition's marketing efforts.
- Customer satisfaction objectives: thinking long term
- Image enhancement objectives : use price to make inferences about the quality of the product.
- profit objective: making a lot of profit.

What is an demand curve?

A graph using a demand curve illustrates the effect of (different) price(s) on the quantity demanded of a product.
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What causes shifts in demand?

- product improvement
- Trendy new advertising campaign that turns product in a must have
- paparazzi catches celebrity having a product
- Changes in the environment or in company efforts.
- Weather/ occasional use
- introduction of new products (cassette > mp3)

What is opportunity costs?

It refers to the value of something that is given up to obtain something else, which also affects the 'price' of a decision.

What is elastic demand?

A change in price results in a substantial change in quantity demanded.

(If price is increaser, revenues decrease. And vice versa.
Non-Necessities (pizza) generate elastic demand. )

What is inelastic demand?

A change in price has little or no effect on quantity demanded.

If price is increased, revenues increase. The demand for necessities (food and electricity) is generally inelastic.

What is cross-elasticity of demand?

Changes in prices of other products affect a product's demand.

Products are subsidies: increase in price of one will increase demand for other (Banana vs strawberry)

One product is essential to use a second (spaghetti and pasta sauce)

What are influences on price elasticity of demand?

- availability of subset goods or services
- Time period
- (look up slide)

What is break-even analysis?

The point of no loss or no profit.
it is a technique used to examine the relationship between costs and price and to determine what sales volume must be reached at a given price before a company will completely ....

What are  Average fixed costs?

Is the fixed costs per unit produced (total ficed costs/number of units produced) (Average ficed costs decreases as the number of units produced.)

How to evaluate the pricing environment ?

- the economy
- The competition
- Consumer trends.

What is straight mark-up pricing?

Most frequent used type of a cost - plus pricing: price is calculated by adding a predetermined percentage to the cost.

What are the advantages and disadvantages of pricing strategies?


advantages:- Simple
- risk free

disadvantages:
- fails to consider: Target market, competition, product life cycle, products image.
- difficult to accurately estimate.

What is based on demand pricing?

Means that the selling price is based on an estimate of volume or quantity that a firm can sell in different markets at different prices.

- target costing
- Yield management pricing (different prices for different customers, e.g. airlines, hotels)

What is a skimming price?

It is for new products, firm charges a hifi premium price for its new product with the intention of reducing it in the future in response to market pressures.

What is trial pricing?

(for new products) Product carries a low price for a limited time period

What are 4 pricing tactics?

- pricing for individual products
   - Two part pricing (tennis, golf, mobile)
  -   Payment pricing (leasing easy payments for new cars.)



- Pricing for multiple products
   - Price bundling (monitor, keyboard, cpu in one computer package)
   - Captive pricing (razors/blades  printers/ink)

- Distribution based pricing
- Discount for channel members

What are 4 discount tactics?

- trade or functional discounts
- Quantity discounts  (discount when you buy more)
- Cash discounts (pay in 2 weeks and get discounts)
- seasonal discounts (in the wrong season, making things lower priced)

What are reference prices?

- internal reference prices: Consumers have a set price or a price range in their minds.

What is assimilation effect?

.....

What is price lining?

Offering the same product in slightly different versions to different customers.
(pc: standard: 300, more advanced: 350/400)

What is the contribution per unit?

The difference between the price the firm charges for a product, and the variable costs.

What is a dynamic pricing strategy?

The seller can easily adjust the price to meet changes in the market place (online).

What is bait-and-switch tactic?

The retailer will advertise an item at a very low price to lure customers into their shop.

What is price fixing?

It occurs when two or more companies conspire to keep prices at a certain level.

What is horizontal price fixing?

it occurs when competitors making the same product determine what price each will charge.

What is vertical price fixing?

Sometimes manufactures or wholesalers attempt to force retailers to charge a certain price for their product.

What is a list price (recommended retail price (RRP))?

it is the price the manufacturer sets as the appropriate price for the end consumer to pay.

What are 4 tactics for discounting to the channel of distribution (wholesalers, retailers)

- trade or functional discounts
- Quantity discounts
- Cash discounts
- Seasonal discounts

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