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Price
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The amount of money charged for a product or service, or the sum of the values that customers exchange
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Customer Value Based Pricing
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Uses buyers' perceptions of value as the key to pricing. (Price is considered along with all other marketing mix variables before the marketing program is set)
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Good-value pricing
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Offering just the right combination of quality and good service at a fair price
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Value added pricing
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Attaching value added features and services to differentiate a company's offers and charging higher prices (EX: Instead of theatres cutting prices they are making them more luxurious)
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Cost Based Pricing
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Involved setting prices based on the costs of producing, distributing, and selling the product plus a fair rate of return for the company's effort and risk. (PRODUCT DRIVEN)
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Fixed Costs (overhead)
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Costs that do not vary with production or sales level (For ex: a company must pay each months bills for rent, heat, interest, and executive salaries regardless of the company's level of output.
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Variable cost
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Costs that vary directly with the level of production
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Total Costs
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The sum of the fixed and variable costs for any given level of production
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Experience curve (learning curve) ****
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The drop in the average per-unit production cost that comes with accumulated production experience
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Cost plus pricing (markup pricing)
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Adding a standard markup to the cost of the product
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Break-even pricing (target return pricing)
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Setting price to break even on the costs of making and marketing a product, or setting price to make a target return
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Competition Based Pricing
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Setting prices based on competitors strategies, prices, costs, and market offerings
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Target Costing
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Target costing starts with an ideal selling price based on consumer value considerations and then target costs that will ensure that the price is met
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Demand curve
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A curve that shows the number of units the market will buy in a given time period at different prices that might be charged
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Price elasticity
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A measure of the sensitivity of demand to changes in price
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What type of pricing is best?
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Value Based because it is based on buyers perceptions of value rather than on seller's cost
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What is not the right way to price?
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Simple approaches such as cost-plus pricing, matching competitors (competitive parity), and target profit pricing based on break even
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What is Value Based Pricing?
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Using the buyers perceptions of value, not the sellers cost, as the key to pricing
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How does IKEA use Target Costing?
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Flat pack idea (saves money)
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What does the learning curve mean? ***
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X% learning curve means that as cumulative production doubles, direct labor costs per unit drop to X% of original level
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Skim Pricing
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Starting with high prices and then lowering prices over timeq
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Penetration Pricing
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Having a lower price to gain market share
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Skim Pricing is used
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When there is inelastic demand, the product is protected by patents (therefore difficult to dulpicate, short term profit objective, and price is seen as surrogate for quality, which price strategy would you use?
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Penetration Pricing is used
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When there is an established market, low barriers to enter, and learning curve effects, and the deisre to gain pioneering advantage what price strategy would you use?
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