MKTG 341 Study Guide - Final Guide: Sales, Press Release, Vehicle Insurance
29 May 2018
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Tuesday, March 27, 2018
MKTG 341: Final Exam Notes
Perceived Value: Pricing
Price Range
Breakeven / Floor Price
• The minimum price a company is willing to sell a product for
• The price at which a company with earn zero profit
Reservation / Ceiling Price
• The maximum price a customer is willing to pay for a product
• The price at which a product is removed from the consideration set
Cost-Based Pricing
Setting price based on: costs of producing, distributing & selling a product + fair rate of return
(i.e. Sportchek & Walmart)
• Cost-plus pricing
o Adding a standard markup to the cost of the product
• Target return pricing
o Setting price to make a specified return
▪ E.g. break-even, cost-based, market-share based
Application of cost-based pricing
• Sellers are more certain about costs than demand (e.g. new product)
• Ignores the consumer perception of value and competitor pricing
• Ignores the concept of a downward sloping demand curve
Competition-Based Pricing
Pricing based on external environmental factors
• Cosuer dead, opetitor’s strateg, arket share, produt life le, diffusio rate
• Not reflective of cost
Market-bearing strategies*
• Penetration: price is lower than the competition
o Competitor has little market power
▪ Boost sales, increase market share, encourage trials
• Parity/Status Quo: price is similar to the competition
o O par ith highest prie, prie leader, arket leader…
Lose Buyers
Lose Money
find more resources at oneclass.com
find more resources at oneclass.com
Tuesday, March 27, 2018
o Survival for small firms, competing against brands
• Skimming: price is higher than the competition
o Product is highly desirable, offers unique benefits
o Patents, quality, image, brand, segmentation
• Value-in-use
o Comparison of value relative to competitors
o When head-to-head competition focus on unique benefits
• Price Wars: a prisoer’s dilemma
o Pay-off grid (contribution) based on self-interest
o Short-term may be okay, but long-term = lose/lose
situation
Value-Based Pricing
Prie ased o a ustoer’s perception of alue, rather tha seller’s osts
• Value = (price, attributes, benefits, alternaties…
o Recall: Value = Benefits - Cost
• High value does not necessarily mean low price
o A low-quality product at a low price could be perceived as good value
• Exchange requirement
o Value > Price > Cost
Value-Based Pricing Approaches
Price Sensitivity Analysis (van Westendorp)
• To determine the range of acceptable prices
At What Price would you:
1. Consider the price of product/service to be so low, that you feel the quality is’t
very good? (i.e. Price-Quality heuristic)
2. Consider this product/service to be a bargain?
3. Say this product/service is starting to get expensive – it’s not out of the question,
but you have to think about buying it
4. Consider the product/service to be so expensive you would not consider buying
it?
PSA Example:
$14.4M $19.2M
$15.4M $13.6M
$15.6M $20.8M
$11.2M $6.8M
Their
Price:
$2.80
High
Their
Price:
$2.50
Low
My Price: $2.60
Low
My Price: $2.80
High
find more resources at oneclass.com
find more resources at oneclass.com
Tuesday, March 27, 2018
Conjoint Analysis
• A simultaneous
ealuatio of attriutes ad attriute leels e.g. prie, taste, teture…
o Because based on price alone: lower price always wins
• Calculate part-worth utilities to estimate how much of one attribute a consumer will give
up for more of another (trade-off between attributes)
Conjoint Example: Regression Results
Profile 1
Utility 2: l-pulp (3.125) + h-sweet (4.0) + p-fruit (4.75) + $1.0
Profile 16
Utility 1: h-pulp (5.375) + l-sweet (5.5) + m-fruit (3.75) + $1.50 (3.625) = 18.25
Psychology of Price
Attribute High Low Range
Pulp 5.375 3.125 2.25 2.25/6.0 37.5%
Sweet 5.500 4.000 1.50 1.50/6.0 25.0%
Price 4.875 3.625 1.25 1.25/6.0 20.8%
Fruit 4.750 3.750 1.00 1.00/6.0 16.7%
Total 6.00 Total 100.0%
Part-Worth Utility
Importance Weight
Attribute
Low 3.125 Pure 4.75 $1.00 4.875 Low 5.500
High 5.375 Mixed 3.75 $1.50 3.625 High 4.000
Sweet Utility
Fruit Utility
Price Utility
Pulp Utility
Profile 16
Price $1.50
Pulp High
Fruit Mixed
Sweet Low
Not Attractive Very Attractive
1 2 3 4 5 6 7
Profile 1
Price $1.00
Pulp Low
Fruit Pure
Sweet High
Not Attractive Very Attractive
1 2 3 4 5 6 7
Bigger the range, greater the
importance of the attribute
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Breakeven / floor price: the minimum price a company is willing to sell a product for, the price at which a company with earn zero profit. Reservation / ceiling price: the maximum price a customer is willing to pay for a product, the price at which a product is removed from the consideration set. Setting price based on: costs of producing, distributing & selling a product + fair rate of return (i. e. sportchek & walmart) Lose buyers: cost-plus pricing, adding a standard markup to the cost of the product, target return pricing, setting price to make a specified return, e. g. break-even, cost-based, market-share based. Application of cost-based pricing: sellers are more certain about costs than demand (e. g. new product) Ignores the consumer perception of value and competitor pricing. Ignores the concept of a downward sloping demand curve. Pricing based on external environmental factors: co(cid:374)su(cid:373)er de(cid:373)a(cid:374)d, (cid:272)o(cid:373)petitor"s strateg(cid:455), (cid:373)arket share, produ(cid:272)t life (cid:272)(cid:455)(cid:272)le, diffusio(cid:374) rate, not reflective of cost.
