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Topic 9: Pricing and Credit Strategies - Coggle Diagram
Topic 9: Pricing and
Credit Strategies
Price Conveys Image
Common small business mistake: charging prices that are too low and failing to recognise 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.
Price sends important signals to customers: quality, prestige, uniqueness, etc.
Competition and Pricing
Key is to differentiate a company's products and services.
Best strategy: Stay out of a price war.
Must take into account competitors' prices, but it is not always necessary to match or beat them.
Focus on Value
Two aspects of price:
Objective value
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.
Perceived value is what customers base their assessment upon when they do not have access to perfect information and, therefore, depend upon their perception of what the product or service is worth.
Companies can influence customers' perception of value, and price is one way a company can communicate value to customers.
Value is not synonynous with low price.
fighter brand
The "right" price for a product or service depends on the value it provides for a customer.
Introducing a New Product
Three Goals
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.
Three basic pricing strategies
Skimming
- a firm charges a high initial price and then gradually lowers the price to attract more price-sensitive customers. E.g. Apple iPhone, Samsung, Sony Playstation, Nike, Adidas.
Life cycle pricing
- A strategy for selling products in which pricing correlates with a product's location in its life cycle, including launch, growth, maturity, and declination. E.g. videocassettes are gone from the shelves. DVDs are in the decline stage, and flat-screen smart TVs are in the mature phase.
Penetration
- a marketing strategy used by business to attract customers to a new product or service by offering a lower price during its initial offering. E.g. Ikea, Android, Netflix.
Pricing Established/Existing Goods
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.
Geographic pricing
- setting different prices for customers located in different territories because of different transportation costs.
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.
Leader pricing
- small retailer marks down the customary price of a popular item in an attempt to attract more customers.
Captive-product pricing
- this technique involves selling a product for a low price and charging a higher price for the accessories that accompany it.
Dynamic pricing
- setting different prices for the same products and services for different customers based on information they have collected about their customers.
By-product pricing
- this technique uses revenue from the sale of byproducts to be more competitive in pricing the main product.
Freemium pricing
- a mix of the words "free" and "premium" is a pricing strategy that businesses use if they want to offer customers free services in addition to paid options.
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.
Price lining
- manager stocks merchandise in several different price ranges, or price lines with each category of merchandise contains items that are similar in apprearance, quality, cost, performance, or other features making it less complicated for the customer.
Follow-the-leader pricing
- basing prices on competitor's price points.
Odd pricing
- establish prices that end in odd numbers with the belief that merchandise selling with an odd ending number (RM12.95) is cheaper than an item evenly priced (RM13.00).
Pricing for Manufacturers
Absorption costing
Variable or direct costing
Cost-plus pricing
Break-even pricing
Consumer Credit
Installment credit
- financed over time and often requires small business owners to turn to local banks and credit unions. If they have the financial strength to carry their "own paper", it can be a major source of interest income, which technically can subsidise prices.
Trade credit
- also referred to as customer charge accounts, can be a drain on small business cash reserves.
Mobile wallets
- applications that link a smart phone or tablet to a credit or debit card, transforming the device into a digital wallet.
Layaway
- a purchasing method by which a consumer places a deposit on an item to "lay it away" for later pickup when they come back and pay the balance.
Debit cards
Minimise Credit Card Fraud
Monitor Web site activity with analytics
Verify large orders
Check customers IP addresses
Post notices on Web site that your company uses anti-fraud technology
Require a CVV2 number
Contact the credit card company or bank that issued the card
Use an address verification system