AHIP EXAM 4 Eaton, Marketing 300, ASU 2023
Internal Factors that Affect Pricing Decisions - ANS 1. Marketing Objectives
2. Marketing Mix
... [Show More] Strategy
3. Costs
Marketing Objectives - ANS -maximize profit
-gain market share
-infer a level of quality
-survive
Marketing Mix Strategy - ANS price needs to be consistent with other 3P's (needs to reflect advertising, etc.)
Costs - ANS your costs affect your profit, so set the optimal price
External Factors that Affect Pricing Decisions - ANS 1. Demand for your product
2. Competition
-competitors price
-strength of competition
3. Economy
- Cost of components (natural resources)
- Economic conditions
Price Elasticity - ANS How much demand for a product will change with a change in price
e=(% change in quantity demanded of Good 'A') / (% change in price of Good 'A')
Elastic - ANS consumers buy more or less of a product when the price changes
Inelastic - ANS increase or decrease in price does not affect demand
unitary elasticity - ANS An increase in sales exactly offsets a decrease in prices, and revenue is unchanged
Stages for Establishing Prices - ANS 1. Develop pricing objectives
2. Assess target market's evaluation of price
3. Evaluate competitors' prices
4. Select a basis for pricing
5. Select a pricing strategy
6. Determine a specific price
1. Develop pricing objectives - ANS Profit- Identify price and cost levels that allow the firm to maximize profit per product
Status Quo- Identify price levels similar to competitor average price
Market Share- Adjust price levels so that the firm can maintain or increase sales relative to competitors' sales
2. assessing the target market's evaluation of price: importance of price - ANS -Type of Product
-Type of Target Market
-Purchase Situation
3. evaluating competitors' prices - ANS Sources of Competitors' Pricing Information
-Comparative shoppers
Importance of Knowing Competitors'Prices
-Helps determine how important price will be to customers
-Helps marketers in setting competitive prices for their products
Customer View of Pricing and Marketing
-Pricing above competition
-Pricing below competition
4. selecting a basis for pricing - ANS Cost-plus pricing: adding a specified dollar amount to the seller's costs
-Markup: Adding to the price of the product a predetermined percentage of the variable cost
-Margin: Adding to the price of the product a predetermined percentage of the total price
cost-based pricing: break-even pricing - ANS the break-even point is where a company produces the same amount of revenues as expenses
breakeven quantity: total fixed cost / (selling price - variable cost)
selecting a basis for pricing: demand - ANS Demand Based Pricing: Customers pay a higher price when demanded for the product is strong and a lower price when demand is weak
Also known as Flexible or Variable pricing
- Off-peak cheaper prices
- Different segments pay different rates
Selecting a basis for pricing: competition - ANS Competition-Based Pricing: Pricing influenced primarily by competitors prices
- Method importance increases when:
- - Competing products are homogeneous resulting in elastic demand
- - Organization is serving markets in which price is a key consideration
selecting a basis for pricing: new product - ANS Price Skimming:
- Charging the highest possible price that buyers who desire the product will pay
Penetration Pricing
- Setting prices below those of competing brands to penetrate a market and gain a significant market share quickly
reference pricing - ANS pricing a product at a moderate level and displaying it next to a more expensive model or brand
known as selling against the brand
5. Pricing Strategy: Portfolio Pricing - ANS Different levels of price points across a product category where consumers are willing to pay more for extras
5. Pricing Strategy: Bundle Pricing - ANS Packaging together two or more complementary products and selling them as one
5. Pricing Strategy: Captive-Product Pricing - ANS -designed specifically for use with [Show Less]