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23 terms

Chapter 10: Understanding and Capturing Customer Value

Flashcards from slides used by UW Principles of Marketing class
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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