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Marketing Exam Study!

    • Value pricing is offering just the right combination of quality and good service at a fair price

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    Competition-Based Pricing

    • Setting prices based on the prices that competitors charge for similar products

    • Also known as going-rate pricing

    • Going-rate pricing is quite popular, when demand elasticity is hard to measure, firms feel that the going price represents a fair return

    • Also they feel that holding the going price will prevent harmful price wars

New product pricing strategies

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    Pricing strategies usually change as the product passes through its life cycle

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    They choose between two broad strategies:

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      Market-Skimming Pricing

      • A high price for a new product to skim maximum revenues layer by layer from the segments willing to pay the high price; the company makes fewer but more profitable sales

      • Going through each price level to sell as much as high prices as possible, and then lowering price and selling as much as possible

      • Market skimming only makes sense under certain conditions, product must have a high quality and image must support the higher price, as well as enough buyers must want the product at that price

      • Also, costs of producing a smaller volume cannot be so high that they cancel the advantage of charging more

      • Finally competitors should not be able to enter the market easily and undercut the high price

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        Market-Penetration Pricing

        • Setting a low price for a new product in order to attract a large number of buyers and a large market share

        • Large number of sales volume results in falling costs, allowing the company to cut its price even further

        • Several conditions must be met for this low-price strategy to work

        • Market must be highly price sensitive so that a low price produces more market growth

        • Production and distribution costs must fall as sales volume increases

        • Low price must help keep out the competition

        • Penetration pricing organization must maintain its low-price position, or the price advantage may only be temporary

Price-adjustment strategies

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    Companies must adjust their basic prices to account for various market differences and changing situations

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    Six price adjustment strategies:

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      Discount and allowance pricing

      • Companies adjust their price to reward customers for certain responses such as early payment of bills, volume purchases, and off-season buying

        • These are called discounts and allowances

      • Discount: a straight reduction in price on purchases during a stated period of time

        • Cash discount: a price reduction to buyers who pay their bills promptly

        • Quantity discount: price reduction to buyers who buy large volumes 24

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