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Topic 9: Pricing and Credit Strategies - Coggle Diagram
Topic 9: Pricing and Credit Strategies
Image, Competition and Value
2 aspects of price
Objective value: of the products and services is what customers would be willing to pay if they understood perfectly the benefits that a product or service delivers. In reality, customers rarely have access to perfect information
Perceived value: determines the price customers are willing to pay.
Price conveys Image
Price sends important signals to customers: quality, prestige, uniqueness, etc.
Common small business mistake: charging prices that are too low and failing to recognize extra value, service, quality, and other benefits they offer.
The key is to understand the target market and identify how much customers are willing to pay rather than how much to charge.
3 goals of introducing new product
Maintaining market share as competition grows
Earning a profit
Getting the product accepted
Revolutionary products: products that are so new and unique that they transform existing markets.
Evolutionary products: products that offer upgrades and enhancements to existing products.
Me-too products: products that offer the same basic features as existing products on the market.
3 basic pricing strategies
Skimming: A firm charges a high initial price and then gradually lowers the price to attract more price-sensitive customers.
Life cycle pricing: A strategy for selling products in which pricing correlates with a product’s location in its life cycle.
Penetration: A marketing strategy used by businesses to attract customers to a new product or service by offering a lower price during its initial offering.
Pricing Established Goods
Odd pricing: Establish prices that end in odd numbers with the belief merchandise selling with an odd ending number (RM12.95) is cheaper than an item evenly priced (RM13.00).
Price lining: Manager stocks merchandise in several different price ranges, or price lines. Each category of merchandise contains items that are similar in appearance, quality, cost, performance, or other features making it less complicated for the customer.
Freemium pricing: a mix of words “free” and “premium” – is a pricing strategy that businesses use if they want to offer customers free services in addition to paid options.
Dynamic pricing: Setting different prices for the same products and services for different customers based on information they have collected about their customers.
Leader pricing: Small retailer marks down the customary price of a popular item in an attempt to attract more customers.
Geographic pricing: Setting different prices for customers located in different territories because of different transportation costs.
Discounts (markdowns): When products make reductions from normal list prices to move stale, outdated, damaged, or slow-moving merchandise. This includes multiple unit pricing.
Bundling: A pricing method that involves grouping together several products or services, or both, into a package that offers customers extra value at a special price.
Optional-product pricing: This is a technique that involves selling the base product for one price but selling the options or accessories for it at a much higher markup.
Captive-product pricing: This technique involves selling a product for a low price and charging a higher price for the accessories that accompany it.
By-product pricing: This technique uses the revenue from the sale of byproducts to be more competitive in pricing the main products.
Suggested retail prices: Accepting the manufacturer’s suggested price does not take into consideration the small firm’s cost structure, image, or competitive situation. This approach does simplify pricing.
Follow-the-leader pricing: Basing prices on competitor’s price points.
Direct Costing & Pricing
Absorption costing:
Traditional method of product costing in which all manufacturing and overhead costs are absorbed into the product’s total cost.
Variable or direct costing:
Product costing method that includes in the product’s costs only those costs that can vary directly with the quantity produced.
Impact of Credit on pricing
Credit (and debit cards)
Installment credit
Trade credit
Consumer credit
Installment credit
Trade credit
Mobile wallets
Layaway
Debit cards