Chapter 10 Flashcards
What is a price?
The amount of money charged for a product or service. The price is the sum of all values that customers give up to gain benefits of having or using a product or service
What does ceiling mean?
A customer’s perceptions of a product’s value set the ceiling for prices. If customers perceive the price is greater than the product’s value, they will not buy the product
What does floor mean?
Product costs set the floor for prices. If a company prices a product below its costs, the company profits will suffer
What does effective customer-oriented pricing involve?
Understanding how much value consumers place on benefits they receive from a product and setting a price that captures this value
What are the steps involved in value-based pricing?
- Company first assesses customer needs and value perceptions
- Then sets target price based on customer perceptions of value
- Pricing begins with analyzing consumer needs and value perceptions, and the price is set to match consumers’ perceived value
What is good-value pricing?
Offering just the right combination of quality and good service at a fair price. It involves introducing less expensive versions of brand-name products
What is an important type of good-value pricing?
Everyday low pricing (EDLP)
What is everyday low pricing?
EDLP involves charging constant, everyday low-price with a few or no temporary discounts
What is high-low pricing?
Involves charging higher prices on an everyday basis but running frequent promotions to lower prices temporarily on selected items
What is value-added pricing?
Attaching value-added features and services to differentiate a company’s offers and charge higher prices
What is cost-based pricing?
Setting prices based on the cost for producing, distributing, and selling a product plus fair rate of return for effort and risk
What are fixed costs?
Costs that do not vary with production or sales level
What are variable costs?
Vary directly with level of production
What is total costs?
Sum of the fixed and variable costs for any given level of production
What is cost-plus pricing?
Adding standard mark-up to the cost of a product
What is break-even pricing?
Setting a price to break even on the costs of making and marketing a product, or setting a price to make a target return
What is competition based pricing?
Involves setting prices based on competitors’ strategies, costs, prices, and market offerings
What is target costing?
Pricing that starts with ideal selling price and then targets costs that will ensure the price is met
Who sets the prices in a small company?
Top management
Who sets the prices in a large company?
Divisional or product line managers
What is pure competition?
Market consists of many buyers and sellers trading in uniform commodity such as wheat, copper, or financial securities
What is monopolistic competition?
Market consists of many buyers and sellers who trade over a range of prices rather than a single market price
What is oligopolistic competition?
Market consists of a few sellers who are highly sensitive to each other’s pricing and marketing strategies
What is a pure monopoly?
A market consists of one sellers
What is the demand curve?
Shows number of units a market will buy in a given time period as different prices that might be charged
What is price elasticity?
A measure of sensitivity of demand to changes in price
What is marketing-skimming pricing?
Setting a high price for a new product to skin maximum revenues layer by layer from segments willing to pay a high price
What is market-penetration pricing?
Setting a low initial price for a new product in order to attract a large number of buyers and a large market share
What is product line pricing?
Setting prices between various products in a product line based on the cost differences between products, customer evaluations of different features, and competitors’ prices
What is optional-product pricing?
A pricing strategy in which the main product is sold at a low margin or near the cost price and marketers focus on promoting extras and upgrades
What is captive-product pricing?
Companies that make products that must be used along with the main product
What is by-product pricing?
Setting the price for by-products to make the main product’s price more competitive
What is product bundle pricing?
Combining several products and offering bundles at a reduced price
What is a discount?
A straight reduction in price on purchases during a stated period of time or on larger quantities
What is a cash discount?
A price reduction to buyers who pay bills promptly
What is a quantity discount?
A price reduction to buyers who buy large volumes
What is a seasonal discount?
A price reduction to buyers who buy merchandise or services out of season
What are allowances?
Promotional money paid by manufacturers to retailers in return for an agreement to feature the manufacturers products in some way
What are trade-in allowances?
Price reductions given for turning in old items when buying a new one
What are promotional allowances?
Payments or price reductions to reward dealers for participating in advertising and sales support programs
What is segmented pricing?
Selling a product or service at two or more prices, where difference in prices is not based on differences in cost
What is customer-segment pricing?
Different customers pay different prices for the same product or service
What is product-form pricing?
Different versions of a product are priced differently but not according to differences in their costs
What is location-based pricing?
Company charges different prices for different locations, even through the cost of offering each location is the same
What is time-based pricing?
A firm varies its price by season, month, day, even hour
What is promotional pricing?
Companies will temporarily price their products below list price and sometimes even below the cost to create buying excitement and urgency
What are some adverse effects of promotional pricing?
- Can create “deal-prone” customers who wait until brands go on sale before buying them
- Constantly reduced prices can erode a brand’s value in the eyes of customers
What is psychological pricing?
Pricing that considers psychology of prices and not simply economics; price is used to say something about a product
What are reference prices?
Prices buyers carry in their minds and refer to when they look at given products
What is geographical pricing?
Setting prices for customers located in different parts of the country or world
What is FOB?
Goods are placed free on board a carrier and title and responsibility pass on to customer, who pays freight from factory to destination
What is uniform-delivered pricing?
Company charges the same price plus freight to all customers regardless of location
What is zone pricing?
All customers within a given zone pay a single total price
What is dynamic pricing?
Adjusting prices continually to meet characteristics and needs of individual customers and situations
What is a major factor in price increases and why?
Cost inflation; rising costs squeeze profit margins and lead companies to pass cost increases along to customers
What is the Competition Act?
Purpose is to encourage competition in Canada in order to promote efficiency and adaptability of the Canadian economy
What does the Competition Act prohibit?
The act prohibits price fixing. Sellers must set prices without talking to competitors, price fixing is illegal, and legal charge for offences of this nature is conspiracy
What does the Competition Act seek to prevent?
Seeks to prevent unfair price discrimination by ensuring that sellers offer the same price terms to customers at a given level of trade. Discriminatory promotional allowances are illegal
