Ch 19 Flashcards
Pricing Concepts
Price
That which is given up in an exchange to acquire a good or service
Revenue
The price charged to customers multiplied by the number of units sold
Profit
Revenue minus expenses
Return on investment (ROI)
Net profit after taxes divided by total assets
Market Share
A company’s product sales as a percentage of total sales for that industry
Status quo pricing
A pricing objective that maintains existing prices or meets the competition’s prices
Demand
The quantity of a product that will be sold in the market at various prices for a specified period
Supply
The quantity of a product that will be offered to the market by a supplier at various prices for a specified period
Elasticity of Demand
Consumers’ responsiveness or sensitivity to changes in prices
Elastic Demand
A situation in which consumer demand is sensitive to changes in price
Inelastic Demand
A situation in which an increase or a decrease in price will not significantly affect demand for the product
Dynamic Pricing
The ability to change prices very quickly, often in real time using software programs
Surge Pricing
Occurs in a fluid market, where demand changes rapidly often hourly. When demand increases, so do prices and vice versa
Variable Cost
A cost that varies with changes in the level of output
Fixed Cost
A cost that does not change as output is increased or decreased
Markup pricing
The cost of buying the product from the producer, plus amounts for profit and for expenses not otherwise accounted for
Keystoning
The practice of marking up prices by 100 percent, or doubling the cost
Break-even analysis
A method of determining what sales volume must be reached before total revenue equals total costs
Extranet
A private electronic network that links a company with its suppliers and customers
Price Strategy
A basic, long-term pricing framework that establishes the initial price for a product and the intended direction for price movements over the product’s life cycle
Price Skimming
A pricing policy whereby a firm changes a high introductory price, often coupled with heavy promotion
Penetration Pricing
A pricing policy whereby a firm charges a relatively low price for a product when it is first rolled out as a way to reach the mass market
Base Price
The general price level at which the company expects to sell the good or service
Quantity Discount
A price reduction offered to buyers buying in multiple units or above a specified dollar amount
Cumulative Quantity Discount
A deduction from list price that applies to the buyer’s total purchases made during a specific period
Noncumulative Quantity Discount
A deduction from list price that applies to a single order rather than to the total volume of orders placed during a certain period
Cash Discount
A price reduction offered to a consumer, an industrial user, or a marketing intermediary in return for prompt payment of a bill
Functional Discount (Trade Discount)
A discount to wholesalers and retailers for performing channel functions
Seasonal Discount
A price reduction for buying merchandise out of season
Promotional allowance (trade allowance)
A payment to a dealer for promoting the manufacturer’s products
Rebate
A cash refund given for the purchase of a product during a specific period
Value-based Pricing
Setting the price at a level that seems to the customer to be a good price compared to the prices of other options
FOB origin pricing
A price tactic that requires the buyer to absorb the freight costs from the shipping point (“free on board”)
Uniform delivered pricing
A price tactic in which the seller pays the actual freight charges and bills every purchases an identical, flat freight charge
Zone pricing
A modification of uniform delivered pricing that divides the Untied States (or the total market) into segments or zones and charges a flat freight rate to all customers in a given zone
Freight absorption pricing
A price tactic in which the seller pays all or part of the actual freight chargers and does not pass them on to the buyer
Basing-point pricing
A price tactic that charges freight from a given (basing) point, regardless of the city from which the goods are shipped
Single-price tactic
A price tactic that offers all goods and services at the same price (or perhaps two or three prices)
Flexible pricing (variable pricing)
A price tactic in which different customers pay different prices for essentially the same merchandise bought in equal quantities
Price lining
The practice of offering a product line with several items at specific price points
Leader pricing (loss-leader pricing)
A price tactic in which a product is sold near or even below cost in the hope that shoppers will buy other items once they are in the store
Bait Pricing
A price tactic that tries to get consumers into a store through false or misleading price advertising and then uses high-pressure selling to persuade consumers to buy more expensive merchandise
Odd-even pricing (psychological pricing)
A price tactic that uses odd-numbered prices to connote bargains and even-numbered prices to imply quality
Price Bundling
Marketing two or more products in a single package for a special price
Two-part pricing
A price tactic that charges two separate amounts to consume a single good or service
Consumer penalties
An extra fee paid by the consumer for violating the terms of the purchase agreement
Unfair trade practice acts
Laws that prohibit wholesalers and retailers from selling below cost
Price fixing
An agreement between two or more firms on the price they will charge for a product
Predatory Pricing
The pricing of charging a very low price for a product with the intent of driving competitors out of business or out of a market
