Chapter 11 Flashcards
price
the assignment of value, or the amount the consumer must exchange to receive the offering
prestige products
products that have a high price and that appeal to status conscious consumers
price elasticity of demand
the percentage change in unit sales that results from a percentage change in price
elastic demand
demand in which changes in price have large effects on the amount demanded
inelastic demand
demand in which changes in price have little or no effect on the amount demanded
cross elasticity of demand
when changes in the price of one product affect the demand for another item
variable costs
the costs of production that are tied to and vary depending on the number of units produced
fixed costs
costs of production that do not change with the number of units produced
average fixed cost
the fixed cost per unit produced
total costs
the total of the fixed costs and the variable costs for a set number of units produced
break-even analysis
a method for determining the number of units that a firm must produce and sell at a given price to cover all its costs
break even point
the point at which the total costs are equal and beyond which the company makes a profit; below that point, the firm will suffer a loss
contribution per unit
the difference between the price the firm charges for a product and the variable costs
marginal analysis
a method that uses cost and demand to identify the price that will maximize profits
marginal cost
the increase in total cost that results form producing one additional unit of a product
marginal revenue
the increase in total income or revenue that results from selling one additional unit of a product
markup
an amount added to the cost of a product to create the price at which a channel member will sell the product
gross margin
the markup amount added to the cost of a product to cover the fixed costs of the retailer or wholesaler and leave an amount for a profit
retailer margin
the margin added to the cost of a product by a retailer
wholesaler margin
the amount added to the cost of a product by a wholesaler
list price or manufacturer’s suggested retail price
the price the end customer is expected to pay as determined by the manufacturer; also referred to as the suggested retail price. the appropriate price for the end customer to pay as determined by the manufacturer
sachets
single use packages of products such as shampoo often sold in developing countries
cost-plus pricing
a method of setting prices in which the seller totals all the costs for the product and then adds an amount to arrive at the selling price
demand-based pricing
a price setting method based on estimates of demand at different prices
target costing
a process in which firms identify the quality and functionality needed to satisfy customers and what price they are willing to pay before the product is designed; the product is manufactured only if the firm can control costs to meet the required price
yield management pricing
a practice of charged different prices to different customers in order to manage capacity while maximizing revenues
price leadership
a pricing strategy in which one firm first sets its price and other firms in the industry follow with the same or very similar prices
value pricing/everyday low pricing
a pricing strategy in which a firm sets prices that provide ultimate value to customers
skimming price
a very high, premium price that a firm charges for its new, highly desirable product
penetration pricing
a pricing strategy in which a firm introduces a new product at a very low price to encourage more customers to purchase it
trial pricing
pricing a new product low for a limited period of time in order to lower the risk for a customer
price bundling
selling two or more goods or services as a single package for one price
captive pricing
a pricing tactic for two items that must be used together; one item is priced very low, and the firm makes its profit on another, high margin item essential to the operation of the first item
fob origin pricing
a pricing tactic in which the cost of transporting the product from the factory to the customer’s location is the responsibility of the customer
fob delivered pricing
a pricing tactic in which the cost of loading and transporting the product to the customer is included in the selling price and is paid by the manufacturer
basing point pricing
a pricing tactic in which customers pay shipping charges from set basing point locations whether the goods are actually shipped from these points or not
uniform delivered pricing
a pricing tactic in which a firm adds a standard shipping charge to the price for all customers regardless of location
freight absorption pricing
a pricing tactic in which the seller absorbs the total cost of transportation
trade discounts
discounts off list price of products to members of the cannel of distribution who perform various marketing functions
quantity discounts
a pricing tactic of charging reduced prices for purchases o larger quantities of a product
cash discounts
a discount offered to a customer to entice them to pay their bill quickly
seasonal discounts
price reductions offered only during certain times of the year
dynamic pricing
a pricing strategy in which the price can easily be adjusted to meet changes in the marketplace
on line auctions
e commerce that allows shoppers to purchase products through online bidding
freenomics
a business model that encourages giving products away for free because of the increase in profits that can be achieved by getting more people to participate in a market
internal reference price
a set price or a price range in consumers’ minds that they refer to in evaluating a product’s price
price lining
the practice of setting a limited number of different specific prices, called price points, for items in a product line
bait and switch
an illegal marketing practice in which an advertised price special is used as bait to get customers into the store with the intention of switching them to a higher priced item
loss leader pricing
the pricing policy of setting prices very low or even below cost to attract customers into a store
unfair sales acts
state laws that prohibit suppliers from selling products below cost to protect small businesses from larger competitors
price fixing
the collaboration of two or more firms in setting prices usually to keep prices high
predatory pricing
illegal pricing strategy in which a company sets a very low price for the purpose of driving competitors out of business
