MarketingLesson 2 of 2 in the course Pricing Products and Services

Five Critical Cs of Pricing: Cost, Customers, Channels, Competition, Compatibility

5 flashcards · 5 quiz questions · 5 match pairs · 5 fill-in sentences · English

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Summary

Pricing is not simply a matter of adding a markup to production costs. Marketers must consider what it costs to offer a product, what customers value and can afford, and how distribution partners affect the final price. This lesson introduces the first three of the five critical Cs of pricing.

A business needs to understand its cost of doing business before setting a price. These costs include fixed costs, which generally do not change with the number of units produced, and variable costs, which change as production or sales volume changes. Knowing both helps marketers determine whether a proposed price can support the business.

All flashcards

What are the five critical Cs of pricing?
They are cost, customers, channels of distribution, competition, and compatibility.
Why is cost an incomplete basis for pricing?
Cost tells a business about its expenses, but it does not establish what customers value or will pay. Pricing also needs to fit the market and the business’s other objectives.
What customer factors influence a price?
Marketers consider customers’ price expectations, perceived value, and willingness and ability to pay.
What is a channel of distribution?
It is the route through which a product moves from its producer to the end user, often with intermediaries such as dealers, wholesalers, or retailers.
Why do channel members matter to pricing?
Each channel member may incur expenses, contribute value, and require a profit. The price must work for these partners as well as the producer and end user.

Quiz questions

  1. Why can a price that covers a seller’s costs still be unsuitable?Answer: Customers may not see enough value in the offer or be willing to pay that price.
  2. How should marketers use competitors’ prices when setting their own price?Answer: Treat them as reference points while positioning the offer on its own merits.
  3. What does compatibility require when setting a price?Answer: The price should fit the target market, product positioning, and company objectives.
  4. Why might an ice cream seller adjust prices between warm and cold seasons?Answer: Seasonal conditions can change demand for the product.
  5. How does context relate to the five critical Cs of pricing?Answer: It is an additional consideration, not one of the original five Cs.

Based on Principles of Marketing by Dr. Maria Gomez Albrecht, Dr. Mark Green, Linda Hoffman (OpenStax), licensed CC BY 4.0. Adapted into a summary, flashcards and quizzes.

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