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Marketing > Chapter 13: Setting the Right Price > Flashcards

Chapter 13: Setting the Right Price Flashcards

1
Q

Define Price

A

Price is based on the satisfaction consumers expect to receive from a product and not necessarily the satisfaction actually received. Price can relate to anything with perceived value, not just money

  • Aka Sacrifice consumers will make, such as time)
  • Price, which is given up in exchange for a good or service
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2
Q

Define Internal Price

A

Determined by financial and accounting formulas

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3
Q

Define External Price

A

Determinants (determined by an understanding of marketing and the external environment) must be considered to ensure a price that satisfies the consumer and the bottom line

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4
Q

What is the Importance of Price to Marketing Managers?

A

Price creates a perception of quality to consumers

  • “Price is what you pay, value is what you get”
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5
Q

What is the Importance of Price for the Consumer?

A

Price means one thing to the consumers, being the cost of something they want

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6
Q

What is the Importance of Price to the seller?

A

Price means making money (Revenue)

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7
Q

Define Establishing Pricing Objectives as the Four Step Pricing Process

A

Managers must consider the products demand, cost, profits, and its further process. This process usually means trade offs occur, being competitive, and having considerations for changing economic conditions, and meeting the company’s overall objectives

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8
Q

Define Profit Maximization as Profit-Orientated Pricing Objectives

A

Profits can be maximized by expanding revenue by increasing customer satisfaction, or reducing costs through efficiency

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9
Q

Define Satisfactory Profits as Profit-Orientated Pricing Objectives

A

Level of profit consistent with the level of risk

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10
Q

Define Target Return as Profit-Orientated Pricing Objectives

A

Target Return on Investments (ROI) is a percentage that puts a firm’s profits into perspective by showing profits relative to investment

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11
Q

Define Market Share as a Sales-Orientated Pricing Objective

A

A company’s product sales as a percent of total sales for that industry. Larger market shares have higher profits, and lower market shares often have lower profits.

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12
Q

Define Sales Maximization

A

If a company is strapped for funds or wants to sell excess inventory

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13
Q

Define Status-Quo Pricing Objectives

A

Often, firms competing in an industry with an established price leader, simply meet the competition prices.

  • Fewer price wars
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14
Q

Define Cost Estimation and Demand Estimation

A

Cost Estimation: Variable and Fixed Costs

Demand Estimation: Historical Data in the industry, life cycle.

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15
Q

Define the Introductory Stage of the PLC

A
  • High prices
  • Recover Development Costs
  • Demand relatively inelastic
  • Price-sensitive market
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16
Q

Define the Growth Stage of the PLC

A
  • Price stabilize
  • Competition enters increasing supply
  • Product appeal has widened
  • Economics of scale lower costs so can pass savings on
  • Demand rises
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17
Q

Define the Maturity Stage of the PLC

A
  • Price decreases as competition increases
  • Distribution channels are a cost factor as a need to intensify
  • Prices across competitors stabilize and price reductions do little as competition just follows
  • Demand is limited
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18
Q

Define Decline Stage of the PLC

A
  • Further price reductions as the few remaining competitors try to recoup
  • Prices could even go up if the remaining product becomes a speciality good
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19
Q

Define Price Sensitivity

A

The degree to which consumers’ behaviours are affected by the price of the product or service.

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20
Q

Define Price Elasticity of Demand

A

The degree of change in demand relative to changes in price

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21
Q

Define Elastic Demand

A

Demand changes a lot when price changes

  • Non-essential
  • Many essentials
  • Smartphones, fashion, cars
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22
Q

Define Inelastic

A

Demand does not respond much to price change

  • Essentials
  • Few alternatives
  • Home heating, electricity
  • basic food
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23
Q

Define Break Even

A

The point at which cost and income are equal and there is neither profit nor loss

Break Even Price = Fixed Cost / (Variable Price Per Unit - Variable Cost Per Unit)

24
Q

Define Choosing a Price Strategy (Stage 3 of PLC)

A

The price strategy sets a competitive price in a specific market segment that is based on a well-defined positioning strategy

  • A company’s freedom in pricing a new product and devising a price strategy, depends on the market conditions and the other elements of the marketing mix
  • Many companies make pricing decisions without a solid pricing strategy and pricing research, which can lead to serious consequences
25
Q

Define Penetration Pricing

A

If the volume of sales does not materialize, then the company will face huge losses. Also, a penetration policy with a prestige product can prove disastrous

  • Changing a relatively low price for a product initially
  • To capture a large share of the market
  • When price sensitive market, demand is elastic. Competitive market, relatively homogenous products potentially a large market, low fixed cost structure, each sale contributes large amount of fixed costs
26
Q

Define Status Quo Pricing

A

Meeting the competition or going-rate pricing, changing a price identical or very close to competition

  • Simple, but it ignores demand and costs
27
Q

Define Stae Four: Use a Price Tactic

A

General Price level that the company plans to sell at.

  • Using a variety of pricing tactics (this provides the opportunity to adjust for unforeseen events in the marketplace)
28
Q

Define Markup

A

Profit-producing device of price, and a component of each pricing tactic

29
Q

Define Quantity Discounts

A

When buyers are charged a lower unit-price when buying either in multiple units or at more than a specified dollar amount, they are receiving a quantity discount.

30
Q

Define Cumulative Quantity Discount

A

Is a deduction from list price that applies to the buyer’s total purchases made during a specific period; it is intended to encourage customer loyalty.

31
Q

Define Non-Cumulative Quantity Discount

A

Is a deduction from list price that applies to a single order rather than to the total volume of orders placed during a certain period. It is intended to encourage orders in large quantities

32
Q

Define Cash Discount

A

Is a price reduction offered to a customer, an industrial user, or a marketing intermediary in return for prom payment of a bill

33
Q

Define Functional Discounts

A

When distribution channel intermediaries, such as wholesales or retailers, perform a service or function for the manufacturer ( for example, setting up retail displays or extending credit), they must be compensated (generally a percentage discount off base)

34
Q

Define Seasonal Discounts

A

A price reduction for buying merchandise out of season

35
Q

Define Value-Based Pricing

A

Strategy that has gown out of the quality movement. Starts with the consumer, considers the competition, and then determines the price.

36
Q

Define Consumer-Driven Organization

A

Seeks to determine the bundle of attributes the consumer wants and want value they place on them

37
Q

Define Competition

A

Must also consider competition, as consumer assign value based on relative to alternatives

38
Q

Define FOB Origin Pricing

A

The buyer absorbs freight costs from the shipping point

39
Q

Define Uniform Delivered Pricing

A

The seller pays for the actual freight charges and bills every purchaser an identical, flat freight charge

40
Q

Define Zone Pricing

A

A modification of uniform delivered pricing. Rather than using a uniform freight rate for its total market, the firm divides it into segments or zones and charges a flat rate per zone

41
Q

Define Freight Absorption Pricing

A

Seller pays all the freight (used intensely competitive markets as a way to break in or be more competitive)

42
Q

Define Basing-Point Pricing

A

Designate a location as a basing point and charges all buyers the freight cost from that point regardless of the city, in which the goods are shipped (this is not very popular)

43
Q

Define Single Price

A

All goods and services are at the same price, and removes price comparison from the buying process

44
Q

Define Flexible Price

A

Different customers pay different prices. This allows the seller flexibility with respect to competition. This is good when dealing with price-conscious consumers, but lacks consistency in profit.

45
Q

Define Professional Services

A

This is used by people who have specialized training. Price sensitivity is limited so consumers will bear the price given. (Must be in ethical terms)

46
Q

Define Price Lining

A

A line of products with prices set at several price points within. This reduces confusion for both the seller and buyer, but does limit flexibility as prices rise and fall for the seller

47
Q

Define Loss Leader

A

Selling a product near or even below cost in the hope that shoppers will buy other items once in the store

48
Q

Define Odd-Even

A

Using odd numbers in the price to connote a bargain

49
Q

Define Pricing Bundling

A

Having two or more products in a single package for a special price. Many issues related to consumer behaviour to consider though

50
Q

Define Two-Part Pricing

A

When charging two separate amounts to consume a single good or service (example: membership fee and then a flat fee for the use). This can attract consumers who will not pay a high upfront fee for limited use

51
Q

Define Legality and Ethics

A

Companies and marketers need to be aware of the laws within the Competition Act before establishing any strategy. The Act covers legal and ethical issues relating to deceptive pricing, price fixing, predatory pricing, resale maintenance, and price discrimination. Both alleged and proven unethical pricing practices, can have serious consequences for the companies and the marketing manager involved

52
Q

Define Bait Pricing

A

Luring customers in through false or misleading advertising, and/or the use of high pressure in-store to sell up

53
Q

Define Deceptive Pricing

A

Promoting a product or price saving that is not actually available or a low price on a limited number of products, promoting a discount from regular price that has not been the regular price, selling a product above the advertised price, and/or double ticketing

54
Q

Define Price Fixing

A

When two or more companies conspire to set a price - establishing a floor in bidding situation or setting the market price that consumer will pay

55
Q

Define Predatory Pricing

A

Setting a price very low with the internet of driving competition out. This is difficult to prove as must show willful intent

56
Q

Define Resale Price Maintenance

A

Cannot dictate the price that retailer sells at or the retailer’s price minimum, manufacturers can provide an MSR but cannot discriminate against retailers that do not adhere to the MSR

57
Q

Define Price Discrimination

A

Charging different prices for different buyers of goods like quality and grade within the same time period to reduce competition, and/or promotional money being offered to channel members to stimulate support but it must be offered proportionally

Marketing (15 decks)

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