We previously discussed the pricing models 1. _____ 2. _____ 3. _______ are frameworks for how to begin to calculate your overall pricing schema for your product offerings.
1. cost-based 2. market-based 3. value-based
Beyond the three pricing models there are several pricing strategies and tactics to consider. How do companies use these?
in combination with each other and in conjunction with the previously mentioned pricing models.
With dynamic pricing, a ______ rate is used for each customer, often based on the product or service’s demand.
What are is used for each customer in dynamic pricing?
what is the variable rate in dynamic pricing based on?
the product or service's demand
Where is dynamic pricing common?
in the hotel and airline industries Chances are, any time you fly in a plane, you’re surrounded by people who have paid different prices to go to the exact same place. And if you’ve ever visited a city during a major sporting or other event, you’ve discovered exactly how much that hotel prices can fluctuate as well. T
As demand ________, either because of seasons, holidays, or other circumstances, the price ________ as well.
In the airline industry, fees appear to fluctuate without reason and longer flights aren't always more expensive than shorter ones. But what seems random is actually airlines' dynamic pricing, using a strategy called....
airline revenue management.
Does airline revenue management work in real time or before an order is made?
It works in real time
What is the one aim of airline revenue management?
to boost revenues.
What generates the prices (makes the decisions) for the dynamic pricing method called airline revenue management?
The decisions are being made by an algorithm.
How does the algorithm in airline revenue management create the prices?
it adjusts fares by using information including past bookings, remaining capacity, average demand for certain routes and the probability of selling more seats later. https://www.cnbc.com/2018/08/03/how-do-airlines-price-seat-tickets.html
What is flat-rat pricing?
Flat-rate pricing charges one rate for unlimited use of a service during a specified timeframe. It’s also considered flat-rate pricing when a company charges one price, no matter the number of hours required to deliver the good or service.
Flat-rate pricing charges _____ rate for ______ use of a service during a specified timeframe
What are examples of flat-rate pricing?
ym memberships and Netflix memberships are examples of flat-rate pricing. Many gyms offer unlimited use by paying one flat fee per month.
Gyms using flat-rate pricing are counting on the fact that...
not all of customers will heavily use their membership. The revenue from the light users helps subsidize the heavier users.
- To subsidize something is to support it by providing it with money or other resources.
Flat-rate pricing can also apply to the creation of a product where the provider delivers the final product and charges _____ price no matter the _____ of hours required to complete it.
In a simplified example, if a company charges a flat-rate price of $10,000 to design a website, then the company delivers the website for that price regardless of the number of programming hours required to complete it.
Why are most customers comfortable with flate-rate pricing?
here is transparency about what they will pay.
What are some cons of flate-rate pricing?
in the instance of gym memberships, infrequent users may feel that they are not getting their money’s worth. In fact, companies sometimes encourage no-show consumers to take advantage of their service before they decide to cancel their membership.
And in the instance of flat-rate pricing for product delivery, the company can lose money if they miscalculate the number of hours required to complete a product or service.
What does A La Carte translate to?
French term for by the card
What is a la carte pricing similar to?
choosing individual items off of a food menu when they hear the term a la carte.
What does a la carte pricing mean?
It means that consumers can choose to add and purchase product features individually, giving them a choice about the final price of the product.
Give an example of a la carte pricing?
For example, when purchasing a laptop computer from the Dell website, a consumer chooses features such as: the size of the hard drive, the amount of RAM, whether or not the laptop has a touchscreen, and whether or not the hard drive is solid state. The customer can choose to add software options as well.
What are the wwo pricing strategies that are commonly used when introducing products to market?
price skimming and penetration pricing
price skimming and penetration pricing are on _______ sides of pricing specturm,
one starts with a high price and then lowers it while the other starts with a low price and then raises it.
Price skimming is when a marketer introduces a product into the market at...
an initial high price and then incrementally lowers the price over time.
This pattern of high to low price usually follows the product’s movement along its product life cycle curve.
What is the reasoning behind price skimming?
When a product is introduced, there are fewer competitors in the market, and the company can charge a higher price for the product. As time goes on, more competitors or substitutes enter the market and the company can no longer sustain those profit margins. The company can lower the price and sell to the next (more price conscious) customer segment along the product life cycle curve.
What is an example of price skimming?
You don’t have to look far to find examples of this. Apple’s iPhone is a famous example of this strategy. Apple introduces the newest version of the iPhone at a high price. By the time the product has made its way through the product life cycle curve, the price of the phone is down to almost nothing, and new versions are being introduced at high prices again.
What is market penetration?
when a company introduces a product at a low price to gain market share.
What does a marketer using market penetration hope to do?
gaining market share, a company hopes to develop a loyal customer base that will continue to repurchase when the company raises prices.
By entering the market with a low price, a company hopes to dissuade competitors from entering during the growth phase of the product life cycle as the initial profit margins are small.