Chapter 14 - Price Dynamics

Question 1

Price

Answer 1

the only element in the marketing mix that generates revenue

Question 2

Types of Pricing

Skimming

Answer 2

used to achieve the highest possible contribution in a short time period

*starting with a high price for a new product

Question 3

Types of Pricing

Market Pricing

Answer 3

final customer price is determined based on competitve prices

*pricing something you’reselling based off how much similar things are selling for

Question 4

Types of Pricing

Penetration Pricing

Answer 4

offer products at a low price to generate volume sales and achieve high market share

*starting with a low price for a new product to quickly get a lot of people to buy it.

Question 5

The Setting of Export Prices

Standard Worldwide Price

Answer 5

Based on average unit of costs of fixed, variable and export-related costs

• there is no single set price everywhere – prices change based on where you are and what people are willing to pay

Question 6

The Setting of Export Prices

Dual pricing

Answer 6

differentiates between domestic and export prices

when the same product or service is priced differently for different groups of people

e.g. locals might pay one price, while toursits pay a different (usually higher price)

Question 7

Dual Pricing

Cost-plus method

Answer 7

the true cost

*setting a price for something by adding up how much it costs to make it and then adding a bit more for profit

Question 8

Dual Pricing

Direct (marginal) cost method

Answer 8

considers cost for producing and selling products for export

*Pricing something based only on the costs directly related to making one more unit of that thing

Question 9

The Setting of Export Prices

Market-differentitated pricing

Answer 9

calls for pricing exports according to the dynamic conditions of the marketplace

settings prices for exports based on what’s happening in the market

Question 10

Ways price esclation can be overcome

Answer 10

1. Reorganize the channel of distribution
2. Adapt the product
3. Use new or more economical tariff or tax classiciation
4. Assemble or produce overseas

Question 11

Managing Foreign Exchange Risk

Forward exchange market

*ways to manage exchange risks

Answer 11

special place where you can make deals with a bank to set a fixed rate for exchanging money in the future

*way for businesses (esp. those involved in international trade) to secure a specific exchange rate ahead of time

Question 12

Managing Foreign Exchange Risk

Currency options market

Answer 12

gives the holder the right to buy or sell foreign currency at a prespecfified price on or up to a pre-specified date

*having the special right to either buy or sell foreign money at a set price, and you can do this on or before a specific date

Question 13

Managing Foreign Exchange Risk

Currency futures market

Answer 13

Conceptually similar to forward market

Question 14

Techniques to Adjust Pricing

Pass-through

Answer 14

when something (like a cost or a change) goes through without getting stuck

*example: if the cost of making a product goes up, and the company doesn’t keep that cost but passes it on to the customers, it’s like a cost-pass through

Question 15

Techniques to Adjust Pricing

Absorption

Answer 15

when something takes in or soaks up another thing – taking in costs so that they don’t need to get passed on to customers

*example: if a company faces higher production costs, but decides not to increase the product’s price, the company is absorbing those extra costs

Question 16

Techniques to Adjust Pricing

Transfer Pricing

Answer 16

deciding how much money one part of a company pays another part for goods or services they exchange

*example: if a commpany has different branches and one branch sells something to another branch, transfer pricing is about deciding the right price for that exchange within the company

Question 17

Transfer Pricing

Cost-based price

Answer 17

setting a price by looking at how much it costs to make a product or provide a service

• if it costs $5 to make a toy, you might add $3 more for profit – so you sell it for $8

Question 18

Transfer Pricing

Market-based price

Answer 18

when looking at what similar things are selling with in the market and setting your price to be competitve with those

*Example: if other stores sell similar shoes for around $50, you might set your price close to that to stay competitive

Question 19

Arm’s length price

Answer 19

deciding a fair price when two parts of a company exchange goods or services

*Example: if one department of a company sells computer parts to another depart. the arm’s length price is fair for that transaction