Pricing Fundamentals
What is the definition of price in a marketing context?
The amount of money charged for a product or service, or the sum of all the values that customers exchange for the benefits of having or using the product or service.
What is market-skimming pricing?
Setting a high price for a new product to skim maximum revenues from segments willing to pay more.
What is a demand curve?
A curve showing the number of units the market will buy at different prices over time.
What are the two broad strategies for pricing new products?
Market-skimming pricing and market-penetration pricing.
What is product line pricing?
Setting price steps across a line based on costs, perceived value, and competitors.
Name the three major pricing strategies discussed in Chapter 9.
Customer value-based pricing
cost-based pricing
competition-based pricing
What is market-penetration pricing?
Setting a low initial price to quickly attract many buyers and gain market share.
Define break-even pricing.
Setting price to break even on costs or achieve a target return.
Why is pricing new products especially challenging? (one key reason)
Uncertain demand/consumer response (limited historical data)
List two key external factors that affect pricing decisions.
Market/demand conditions; competitors' prices/strategies (also economy, regulation).
This pricing approach starts with customers' perceived worth and works backward to set price.
Value-based pricing
Setting a low initial price to deter rivals and win share fast is this strategy.
Market-penetration pricing
Break-even volume equals fixed costs divided by this per-unit value (Price − Variable Cost).
Contribution margin
For penetration pricing to work profitably, unit costs typically must fall with volume due to these.
Economies of scale (experience effects)
Setting prices to achieve a specific ROI or profit objective is called this.
Target return pricing
Among the three major strategies, this one bases prices primarily on rivals' prices and moves.
Competition-based pricing
Setting a high initial price to harvest early adopters is this strategy.
Market-skimming pricing
Total cost equals fixed cost plus this cost type that varies with output.
Variable cost
Skimming works best when early demand has this price-sensitivity characteristic.
Relatively inelastic demand (low price sensitivity)
Charging different prices to different customer segments for the same product is called this.
Segmented pricing (price discrimination)
This term is the price consumers carry in mind and use to evaluate a current price.
Reference price
Setting price by adding a standard markup to cost is known as this.
Cost-plus (markup) pricing
This pricing philosophy sets price to reflect buyers' benefits, not sellers' costs.
Value-based pricing
Legal protection that helps sustain skimming by limiting imitation is called this.
Patent protection
Frequently changing prices based on real-time demand, supply, or customer data is known as this.
Dynamic pricing