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Pricing Strategies
Elasticity
Using Elasticity to Set Prices
(chart on page 29)
Major Areas of Pricing
Majors Areas of Pricing cont.
100
What are the three main pricing strategies?
What is Customer Value Based Pricing, Cost Based Pricing, Competition Based Pricing
100
If demand hardly changes with a small change in price, then the demand is considered to be inelastic or elastic?
What is inelastic
100
If Price is HIGH and demand is Elastic, what section of the chart would you be in and what does this mean?
Lost Opportunity- Overpriced; go lower to produce demand
100
What are the three main areas of pricing that we discussed in class?
What is New Product Pricing, Product Mix Pricing, and Adjustments to price
100
what type of product mix pricing involves adding options to a standard model?
What is Optional Product Pricing
200
What type of customer value based pricing involves offering the right combination of quality and good service at a fair price?
What is Good Value Pricing
200
If demand is elastic, a price increase will _____ sales and _____revenue
decrease; decrease
200
If Price is LOW and demand is ELASTIC, what box are you in on the chart and what does this mean?
Price is King- Price is the reason, buyers will only increase in price sensitivity (turns product into a commodity)
200
What are the two major pricing strategies for new product pricing?
What is Price Skimming (start high, end lower) and Penetration (Start lower and maintain price)
200
what type of product mix pricing involves selling two or more products for a single price?
What is Price Bundling
300
What are the two types of Good Value Pricing discussed in the book?
What is EDLP (every day low prices) and High-Low Pricing
300
If demand is inelastic, a price decrease will _____ sales slightly (only if E is negative) and ______ revenues
Increase; decrease
300
If Price is HIGH and demand is INELASTIC, what box are you in on the chart and what does this mean?
Gold Rush- Build inelasticity; watch the market
300
What are the four types of Product Mix Pricing?
Product Line, Optional Product, Captive Product, Product Bundling
400
What type of pricing strategy involves setting the prices based on the costs for producing, distributing, and selling the product plus a fair rate of return for its effort and risk
What is Cost Based Pricing
400
Why is most elasticity negative?
Sales and price are inversely related, as price increases, sales will decrease
400
If Price is LOW and demand is INELASTIC, what box are you in on the chart and what does this mean?
Don't go here- inappropriate match of price and market for this product
400
what type of product mix pricing involves price jumps based on features?
What is Product Line Pricing
400
What is psychological pricing?
when sellers consider the psychology of pricing, not just economics. For example, quality is associated with higher prices, so a high price sends a message about quality
500
What are the two types of cost based pricing discussed in the book and how do they work?
What is Cost-Plus Pricing (adding a standard markup to the cost of the product ) and Break-Even Pricing (Setting price to break-even on the costs of making and marketing a product, or setting price to make a target return)
500
Describe what happens to price and unit sales when E = -2
There will be a 1% decrease in price and 2% increase in unit sales OR a 1% increase in price and a 2% decrease in unit sales
500
If Price is in the middle and demand is INELASTIC, what box are you in on the chart and what does this mean?
The One that got Away- under priced, could have gotten more; tough to go up
500
What type of product mix pricing involves two or more products that work only when used together?
What is Captive Product Pricing
500
What is internal reference price?
Prices that consumers carry around in their heads. For example, you likely know the price of gas today but not the price of an oven today