Chapter 13 Flashcards
The amount of funds required to purchase a product
Price
The three foundations when considering a pricing strategy
Costs
Potential demand
Competition
Pricing objective classifications
Volume or sales
Competition
Prestige
Sales maximization
A car manufacturer pricing to ensure they sell through their production capacity for the year
Market share
Vita Coco temporarily cutting prices on coconut water to gain market share in the category
Competitive parity
Airlines and neighboring gas stations often match each other’s prices
Value pricing
Apple adds new features to the iPhone to justify its higher price compared to Samsung’s Galaxy
Lifestyle
High-priced luxury apparel and accessories
Image
Premium-price free-trade coffee
pricing practices aimed at achieving a particular sales volume or market share
volume or sales objectives
Companies may price to drive a particular amount of sales volume related to:
Production capacity
Distribution opportunities
Profit requirements
Previous year sales
What is an additional pricing strategy?
The practice of reducing prices (at least temporarily) to gain market share.
Pricing practices intended to maintain pricing parity or emphasize overall product value to avoid direct price comparison
Competition objectives
value pricing
a firm emphasizes the benefits of a product compared to the price and quality of competing products.
establishing a relatively high price to develop and maintain an image of quality and exclusiveness
prestige pricing
cost-based pricing
using the product cost plus a target markup percentage to calculate the sales price
markup
the cost multiplied by one plus the target markup percentage
the portion of sales revenue left over after paying product costs
margin
variable costs
costs that change with the level of production
Examples: raw materials, labor costs
fixed costs
costs that remain stable at any production level within a certain range.
Examples: lease payments, administrative staffing, insurance costs
Breakeven analysis
an effective tool for marketers in assessing the sales required for covering costs and achieving certain profit levels.
Shortcomings of Breakeven Analysis
It assumes that costs can be clearly divided into fixed and variable categories.
It assumes that per-unit variable costs don’t change at different levels of operation.
It is a cost-based model that doesn’t directly address whether consumers will purchase the product at the specified price.
cost-volume-profit (CVP):
the relationship between prices, demand, and overall profitability
