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marketing test 5
Terms in this set (81)
money charged for a product or the sum of all values that customers exchange for the benefits of having or using the product
consists of monetary and combination of monetary and non monetary
What is the biggest determinant of price?
why is pricing so important?
What is the value equation?
-benefits + costs - pricing is a reflection of everything you do as a business.
- it effects value creation
- idea + attractiveness of a market offering
people hesitate to buy....
no profits below this price
no demand above this price
what you GET vs what you GIVE
What are the four types of markets?
1. pure competition
2. monopolistic competition
3. oligopolistic competition
4. pure monopoly
- consists of many buyers and sellers
- trade in a uniform commodity
- no single buyer or seller has much effect on the going market
- sellers in these markets do not spend much time on marketing strategy
- market consists of many buyers and sellers
- trade over a range of prices because sellers can differentiate their offers to buyers
- market consists of only a few large sellers
- each seller is alert and responsive to competitors pricing strategies and marketing moves
- think cellular companies
how much of the market do sprint, verizon, ATT, and tmobile make up?
- market dominated by one seller
- pricing is handled differently in each case
EX: gov related monopoly (USPS)
EX: private regulated monopoly (power company)
EX: private unregulated monopoly (de beers + diamonds)
what is a demand curve?
a curve that shows the relationship between the price of a product and the quantity demanded
a table that shows the relationship between the price of a product and the quantity demanded
the amount of a good or service that a consumer is willing and able to purchase at a given price
the demand by all consumers of a given good or service
what are the assumptions of the demand curve?
cetaris paribus: "all else equal"
- only two things differing is price or demand but this only true if everything else is constant
in a relationship between two variables...
all other variables must be held constant
law of demand
the rule that holding everything else constant, when the price of the product rises demand of the product will decrease and vice versa
Is the law of demand true for all products? What products would it not be true for?
no, but most.
Not true for luxury products
What is price elasticity?
% change in quantity demanded/% change in price
responsiveness of demand to changes in price
demand is inelastic when
demand is elastic when
If demand hardly changes with small changes in price it's
If demand changes greatly it's
if demand is elastic rather than inelastic, sellers will...
consider lowering the price because lowering the price would produce more total revenue
the more inelastic it is... the ____ the curve
% change in demand is ____ than % change in price
substitutes are elastic because...
if the price changes on something I am going to get something else
necessities are inelastic because....
you have to get it regardless
inelastic but behaviors change
movie tickets are...
becoming more elastic - % of disposable income is low
what is the difference between movement along a demand curve and moving THE demand curve?
- shift of the demand curve is an increase or decrease in demand
- shift in need/want
- movement along the demand curve is an increase or decrease in the quantity demanded
- price change
what are the aspects we discussed that shift the demand curve?
prices of related goods (substitutes, compliments)
population and demographics
expected future prices (scarcity)
affects a consumers willingness and ability to buy goods
good for which the demand increases as income rises and decreases as income falls
-shift to the right
a good for which the demand decreases as income rises, and increases as income falls
- ex: mcdonalds
prices of related goods
substitutes = good or service that can be used for the same purpose
ex: substitute teacher
compliments = one with the other - goods or services that are used together
ex: shaving cream and razor
if consumers tastes change, they buy more or less of the product.
ex: healthy eating trend
population and demographics
as population increases, the number of consumers and the demand for most products will increase.
- more people more demand
ex: increase in elderly population
expected future prices (scarcity)
price expectations and how that effects how much people buy now
expectations: if consumers expect prices to change, they may buy more or less of the product.
ex: airline price expectations
Left shift =
decrease in demand
-compliments (effect of demand of big mag, if fries increase)
Right shift =
increase in demand
- effect on demand of medical care as population ages (p&d)
-effect in demand for big macs if whopper increases (subs)
- effect on demand for cars if consumers think subsidy will expire (expectations)
a DECREASE in price ____ cause an INCREASE in demand
will not - it will cause a movement along the demand curve but not an increase in demand.
the demand curve already describes how much of the good consumers want to buy at any given price
marketing wants to shift the demand curve because we aren't always selling products but ideas too
- point is to shift demand curve = more product
- scarcity and pricing are marketing tactics
Why is pricing so important when considering profitability?
prices are the only part of the marketing mix that have an influence on a companys bottom line
- only one that provides revenue
- small improvement in % in price can generate a large % increase in profitability
- plays key role in creating customer value and building customer relationships
cost based pricing
pricing strategy is solely based on cost - how much they spend vs. how much they want to make - this is what they base their price on.
competition based pricing
setting prices based on competitors strategies, costs, prices, and market offerings.
ex: price matching
demand (value) based pricing
using buyer's perception of value as the key to pricing
- you are basing your prices on the customers demand
what are the types of pricing approaches for demand and cost pricing?
- markup (cost - plus): adding a standard increase to cost of a product (how much you want to make)
- experience curve: a planned reduction in price for increased production - when you're producing more of a product you decrease the price in hopes people will buy more.
- good value pricing: the right combination of quality goods and services at a fair price - what you perceive the price should be and that's what it is.
- value-added: attaching services and features to a product to support higher prices (ex: adding a GPS to a car and charging more)
- EDLP pricing: keeping pricing at a very low rate instead of discounting
Hi-Low: having high prices most of the time and having good discounts`
What are the types of costs?
costs that do not vary with production or sales level
vary directly with the level of production
- how many units you make
sum of fixed and variable costs for any given level of production
What is price discrimination?
charging different prices to different groups of people
What is the sequence of steps for cost based pricing?
1. design a good product
2. determine product costs
3. set price based on cost
4. convince buyers of products value
What is the sequence of steps for demand based pricing?
1. assess customer needs and value perceptions
2. set target price to match customer perceived value
3. determine costs that can be incurred
4. design product to deliver desired value at target price (good pricing starts with the customer)
What is the purpose of price discrimination?
to maximize profits by reaching every market along the demand curve - pricing your products based on who it is (discounts, specials, etc)
What are the three methods of price discrimination? (know this well)
1. allow customers at the bottom of the demand curve to pay less (discounts, rebates, specials, contests)
2. charge customers at the top of the demand curve more (value added pricing, freemium, and dynamic pricing)
3. allow customers to pay exactly what they are willing (pay what you want)
a product that is offered that has a free version and a paid version (spotify) the intent is to attract customers to the product with the free version and then get them to upgrade to the paid version
changing the price for different market segments or take into account different situational factors
(florida residents pay less at disney world)
why must firms be careful when price discriminating?
unfairness - negative attribution towards the reputation of the company
(soccer team getting a discount just because they play for auburn)
What are three determinants of negative attribution?
1. perceptions of excessive profit
2. perceived immortality
3. inability to understand pricing strategy
perceptions of excessive profit
in comparison to estimated or cost/reference price - you are charging more to have excessive profit instead of to meet a different market segment
customer perception that a company is just jacking up the price to make the most profit (BTG)
deception - take advantage of a situation
people think you're just deceiving people and taking advantage of them based on your price
inability to understand pricing strategy
inability to understand price changes - you don't know what goes into making the product so you cant understand the price
What does reputation have to do with this?
negative attribution can lead to negative reputation
Psychological pricing factors:
pain of payment
odd numbers look cheaper than even round numbers because of left digit processing (29.99)
a third useless choice will help you choose the more expensive option because it makes people think they are getting a better deal
(not a huge price change between grande and venti so people usually buy venti)
top shelf is a good placement at the grocery store
Left = smaller
right = bigger
top = more presigious
bottom = low/small
gas - lots of digits makes you not process the price
only used for rational purchases and not for wants
stimulus that influences your reaction to brand
"since 1855" makes you think they are great because they have been around for a long time
pain of payment
we hate paying for things at the end because it reminds of us of the $$
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