Chapter 13 - Pricing

Question 1

Pricing Objectives

Answer 1

1. Profit
2. Sales Growth
3. Competitive Advantage
4. Positioning
5. Social

Question 2

Brand equity

Answer 2

• Value to company, value to customers.

- Customers pay more for brands they trust and value.

Question 3

3 C’s

Answer 3

• Cost (Variable vs. Fixed)
• Competition (Range)
• Customer (Final Say!)

Question 4

Second market discounting/Yield mgmt pricing

Answer 4

Charge 1 price to primary target and charge a 2nd price (lower) to ancillary targets or segments.

Question 5

Skimming

Answer 5

HIGH PRICE, LOW COMPETITION

• Take best part off of the top
• charge high price to innovators
• Good for new technology

Question 6

Penetrating

Answer 6

HIGH COMPETITION, LOW PRICE

• Good warranty
• Low profit margin

Question 7

Captive Pricing

Answer 7

• Contracts
• No one likes to be held captive
• 2 items must be used together so it makes you buy both no matter what.

Question 8

Loss Leader

Answer 8

Offer low price for something to get you in the store and then may take a loss on the item, but make money on the other products.

Question 9

Price Bundling

Answer 9

Putting several things together in a bundle.

- Usually better priced that creates value.

Question 10

Multiple Unit Pricing

Answer 10

Buying same unit but in a larger quantity gives a better price.

Question 11

Reference Pricing

Answer 11

Comparing 2 brands to each other and the prices encourage action from the customer to buy a certain brand.

Question 12

Odd vs. Even

Answer 12

• 9 is the most powerful odd ending (discount or on sale)
• Even prices = professional services
• Odd prices = goods
• 0’s indicate quality to people

Question 13

Prestige Pricing

Answer 13

Can charge very high prices.

- Emotional impact trumps (skier)

Question 14

FOB Pricing

Answer 14

• Free on Board, Freight on Board
• Talks about transfer of ownership
• Shipping work with suppliers to a certain destination
• Cost of transporting is cost of customer

Question 15

Periodic

Answer 15

A period where people know you will have a sale.

Question 16

Random

Answer 16

Excess inventory and a need to get rid of products leads to lower prices offered.

Question 17

Dynamic Pricing

Answer 17

Price changes based on supply and demand

Question 18

Mark up on cost

Answer 18

Charge a percentage to customers above the cost to the firm.

Question 19

Price Fixing

Answer 19

Working with a competitor to determine a price to charge to the customer.
- Illegal

Question 20

Predatory Pricing

Answer 20

Your are charging prices so low to drive out competitors and then increase prices later.
- Illegal

Question 21

Dumping

Answer 21

International business

• Foreign competitor can’t charge price in US lower than in home market.
• Illegal

Question 22

Price discrimination

Answer 22

Can’t charge on group a different price than another group.

- B2B

Question 23

Deceptive Pricing

Answer 23

Illegal to put pricing related material in the fine print.

Question 24

Bait and Switch Techniques

Answer 24

• Pull customer into the store, but then when the customer comes in, the advertisement doesn’t exist or they don’t have the product advertised.

Question 25

Discounting Objectives

Answer 25

• Quantity (if buy quantity = discount)
• Cash Flow (2/10 net 30)
• Inventory can be discounted.

Question 26

Price Leadership

Answer 26

One firm sets its price and other firms in the industry follow with the same or very similar prices.

Question 27

Freight Absorption Pricing

Answer 27

Seller absorbs the total cost of tranpsortation

Question 28

List price

Answer 28

The price the end customer is expected to pay as determined by the manufacturer.

Question 29

Dynamic Pricing

Answer 29

The price can easily be adjusted to meet changes in the marketplace.

Question 30

Internal Reference Price

Answer 30

A set price or a price range in consumers’ minds that they refer to in evaluating a product’s price.