marketing test 3 short essay question

marketing test 3 short essay question - Marketing Test 3...

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Marketing Test 3 Short Essay Questions Suki.
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C11 1. What’s demand based pricing? What are the advantages and disadvantages? Demand-based pricing means that the selling price is based on an estimate of volume or quantity that a firm can sell in different markets at different prices. To use any of the pricing strategies based on demand, firms must determine how much product they can sell in each market and at what price. Advantage : matches customer’s perception of value; lead to potential high profit; Disadvantage : needs research, may be below cost and not recover all costs; Management must be able to estimate demand at different price levels, which may be difficult to do accurately. Segments must be separate enough so that those that buy at lower prices can’t sell to those who buy at higher prices Two specific demand-based pricing strategies are: Target costing: Identify quality and functionality customers need and price they’re willing to pay before designing product Yield management pricing: Manages capacity by charging different prices to different customers 2. Price elasticity of demand and its importance to marketing. Price Elasticity of Demand is the percentage change in unit sales that results from a percentage change in price. When demand is elastic, changes in price have large effects on the amount demanded When demand is inelastic, changes in price have little or no effect on the amount demanded Elastic Demand Revenues decrease as price increases and vice versa Non-necessities (pizza) generate elastic demand Availability of close substitute products facilitates elastic demand Inelastic Demand As price increases, revenues increase The demand for necessities such as food and electricity is generally inelastic Graph: P354 bottom 3. What is skimming, penetration, trial? Skimming price: Set a high price for a new product to “skim” revenues layer by layer from the market
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Company makes fewer but more profitable sales When to use: --- Product’s quality and image must support its higher price --- Costs of low volume cannot be so high they cancel the advantage of charging more --- Competitors should not be able to enter market easily and undercut the price Penetration pricing: Set a low initial price in order to “penetrate” the market quickly and deeply. Can attract a large number of buyers quickly and win a large market share. When to Use: --- Market is highly price sensitive so a low price produces more growth. --- Costs must fall as sales volume increases. --- Need to keep competition out or effects are only temporary. Trial pricing: Set a low price for a limited period of time to lower the risk for a customer Unlike penetration pricing, in which the company maintains the low price, in this case it increases the trial price after the introductory period. The idea is to win customer acceptance first and make profits later.
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This note was uploaded on 01/14/2012 for the course MKTG 2201 taught by Professor Jm during the Fall '10 term at Northeastern.

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marketing test 3 short essay question - Marketing Test 3...

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