chapter 13 pricing Flashcards
def. Price
- the money or other consideration, including other products and services, or time,
- exchanged for the ownership or use of a product or a service.
what is the indicator if value
price
price eqn.
price=list price - incentives and allowances + extra fees
example of incentives and allowance
cash discount
school scholarship
the six steps in setting price
- identify pricing constraints and objectives
- estimate demand and revenue
- estimate cost, volume, and profit relationships
- select an approximate price level
- set list or quoted price
- make special adjustments to list or quoted price
what are the constraints and objectives
constrains: demand for product class and brand, newness, costs and competition
objectives: profits, market share, and survival
def. pricing constraints: 7 catagories
.1. Demand for the Product Class
- Newness of the Product
- Single Product versus a Product Line4. Cost of Producing and Marketing the Products
- Cost of Producing and Marketing the Product
- Cost of changing prices and time period
- Type of competitive market structure
- Competitors’ prices
def. pricing constraints: 7 categories
.1. Demand for the Product Class
- Newness of the Product
- Single Product versus a Product Line4. Cost of Producing and Marketing the Products
- Cost of Producing and Marketing the Product
- Cost of changing prices and time period
- Type of competitive market structure
- Competitors’ prices
def. pricing constraints: 7 categories
.1. Demand for the Product Class
- Newness of the Product
- Single Product versus a Product Line
- Cost of Producing and Marketing the Product
- Cost of changing prices and time period
- Type of competitive market structure
- Competitors’ prices
how does competition affects the pricing
- influences the nature of product differentiation and extent of advertising;
- in turn the latitude of price competition.
types of competition
- pure monopoly
- oligopoly
- monopolistic competition
- pure competition
types of competition
- pure monopoly
- oligopoly
- monopolistic competition
- pure competition
what is pure competition
Many local competitors
what is oligopoly
a market is shared by a few companies. The price war is very harmful
def. pricing constraints: 7 categories
What factors impact the list price to determine the final price?
.1. Demand for the Product Class
- Newness of the Product
- Single Product versus a Product Line
- Cost of Producing and Marketing the Product
- Cost of changing prices and time period
- Type of competitive market structure
- Competitors’ prices
monopolistic competition
Local and Regional non-price competitors (Ads: product features)
three main strategies to handle competition
- extent of price competition
- extent of product differentiation
- extent of advertising
what is oligopoly
a market is shared by a few companies. The price war is very harmful.
The sellers are sensitive to each other’s price
define Pricing objectives
- broad objectives that specify the role of price in an organization’s marketing and strategic plans.
- These objectives may change over time and PLC and impact pricing directly.
identify 5 pricing objects
- profit
- sales and market share
- unit volume and costs
- BE point( survival!!)
- social responsibility
How does the type of competitive market affects a firm’s latitude in setting price? (3)
The type of competition considerably influences the latitude of price competition and, in turn, the nature of product differentiation and extent of advertising
Demand curve shows ___
the maximum number of products that consumers will buy at a given price
key influential factors that impact demand (6)
- Consumer tastes
- Price and availability of
- other products (substitutes)
- Consumer income/budget
- Other factors (convenience)
- Initial Cost and carrying
cost over time (Electrical Cars) - Cost of disposal
when does a shift in the demand occur?
any factors influencing demand change
what is a movement along a demand curve?
when the price is lowered (increased) and quantity demanded increases (decreased), assuming that other demand factors remain unchanged.
when does a shift in the demand occur?
any of 6 factors influencing demand change
def. elastic demand
Slight decrease in price will trigger a large increase in product sold.
What does it mean if a product has inelastic demand?
Slight increases or decreases in price will not have much impact on quantity demanded.
def. Total revenue
the total amount of money received from the sale of the product
def. variable cost
Impact of volume of production (economies of scale and scope)
importance of Break-Even analysis
the relationship between total revenue and total cost to determine profitability at various levels of output
What is the difference between fixed cost and variable cost?
Fixed cost is the sum of the firm’s expenses that are stable and do not change with the quantity of product that is produced and sold. Variable cost is the sum of the firm’s expenses that vary directly with the quantity of product that is produced and sold.
What is a break-even point?
The break-even point (BEP) is the quantity at which total revenue and total cost are equal and beyond which profit occurs.
what is Cost-Oriented Approaches
the price setter stresses the supply or cost side and not the demand side of the pricing problem, not the demand side.
Cost-Plus Pricing=
summing up all cost components + a mark-up
Standard Markup Pricing =
adding a fixed percentage to the cost of all items in a specific product class
Experience Curve Pricing =
allowing for cost reduction due to experience (10 to 30%)
what is Profit-Oriented Approaches
attempt to balance both revenues and costs to set prices
what is Profit-Oriented Approaches
attempt to balance both revenues and costs to set prices.
attempt to balance both revenues and costs to set prices
what is Competition-Oriented Approaches
stress what competitors or “the market” is doing rather than emphasize demand, cost, or profit factors
Customary Pricing =
Setting price dictated by tradition
Customary Pricing=
Setting price dictated by tradition
Above- At- or Below- Market Pricing=
Above- At- or Below- Market Pricing
Loss-Leader Pricing=
The purpose of loss-leader pricing is not to increase sales of that particular product and to attract customers in the hopes that they will buy other products as well, particularly discretionary items that carrying large markups.
Before the final list or quoted price is set, the effects on the___, ____, and _____ must be assessed.
company, customers, and competitors
what is the company effects affecting the final list or quoted price
impact of price-change on other products and product lines
Product-line pricing=
The highest (Premium to generate profits) and lowest price (Discount to generate traffic) products should make sense to consumers.
what is the customer effects affecting the final list or quoted price
customer perception of price-quality
what is the competitive effects affecting the final list or quoted price
retaliations: price war– successive cutting of price
when cutting off a price, what what should consider? (3)
- cost advantage
- elastic demand
- impact is confined to specific product and customer class
def discount
reductions from list price
- a seller gives a buyer
- a reward for some activity of the buyer
- that is favorable to the seller
4 types of discount
Quantity Discounts (buy more) Seasonal Discounts (buy earlier) Trade (Functional) Discounts (Reward for performing certain functions) Cash Discounts (pay quickly)
def.
reductions from list or quoted prices to buyers for performing some activity
ex.
Trade-In Allowances
Promotional Allowances
Allowance for every day low pricing
To reflect the cost of transportation of the products from seller to buyer, geographical adjustments are made by______to list a quoted price
manufacturers or even by wholesalers
def. FOB Origin Pricing
Free on Board at a named location involve loading on the transport vehicle at that location
Uniform Delivered Pricing
FOB at buyer’s location
five pricing practices which have received the most legal and regulatory scrutiny
Price Fixing Price Discrimination Predatory Pricing Deceptive Pricing Delivered Pricing
which document of legislation addresses the five pricing practices?
Competition Act
two types of pricing fixing
vertical and horizontal
def. vertical price fixing
Vertical Agreements for re-ale price maintenance
def. horizontal price fixing
Horizontal agreements to set prices
Why would a seller choose a flexible-price policy over a one-price policy?
Most companies use a one-price policy. A flexible-price policy gives sellers considerable discretion in setting the final price in light of demand, cost, and competitive factors. Flexible pricing has grown in popularity because of increasingly sophisticated information technology.
barter
the exchange of goods and services
