Chapter 10: Understanding and Capturing Customer Value

23 terms by Jennifer365

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Flashcards from slides used by UW Principles of Marketing class

Price

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

Price

The only element in the marketing mix that produces revenue; all other elements represent costs

Value-based Pricing (major pricing strategies)

Uses the buyers' perceptions of value, not the sellers cost, as the key to pricing. Price is considered before the marketing program is set.
-Value-based pricing is customer driven
-Cost-based pricing is product driven

Good-value Pricing

Offers the right combination of quality and good service at a fair price

Everyday :ow pricing (EDLP)

Charging a constant everyday low price with few or no temporary price discounts

High-low Pricing

Charging higher prices on an everyday basis but running frequent promotions to lower prices temporarily on selected items

Value-added Pricing

Attaches value-added features and services to differentiate offers, support higher prices, and build pricing power

Cost-based Pricing

Adds a standard markup to the cost of the product

Types of Costs

-Fixed costs
-Variable costs
-Total costs

Fixed Costs

Costs that do not vary with production or sales level:
-Rent
-Heat
-Interest
-Executive salaries

Variable Costs

Costs that vary with the level of production
-Packaging
-Raw materials

Total Costs

The sum of the fixed and variable costs for any given level of production

Cost-plus Pricing

Adds a standard markup to the cost of the product
-Benefits
Sellers are certain about costs
Prices are similar in industry and price competition is minimized
Buyers feel it is fair
-Disadvantages
Ignores demand and competitor prices

Break-even Pricing

The price at which total costs are equal to total revenue and there is no profit

Target Profit Pricing

The price at which the firm will break even or make the profit it's seeking

Competition-based Pricing

-Setting prices based on competitors' strategies, costs, prices, and market offerings.
-Consumers will base their judgments of a product's value on the prices that competitors charge for similar products.

Target Costing

Starts with an ideal selling price based on consumer value considerations and then targets costs that will ensure that the price is met

Competition

-Pure competition
-Monopolistic competition
-Oligopolistic competition
-Pure monopoly

Price Elasticity of Demand

Illustrates the response of demand to a change in price

Inelastic Demand

Occurs when demand hardly changes when there is a small change in price

Elastic Demand

Occurs when demand changes greatly for a small change in price

Price Elasticity of Demand

% change in quantity demand/
% change in price

Factors that Affect Price Elasticity of Demand Include:

Unique product
Quality
Prestige
Substitute products
Cost relative to income

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