Chapter 17 Flashcards
Price Elasticity of Demand
Measures how much demand changes in response to price changes.
If a coffee shop raises prices and sales drop significantly, demand is elastic.
Horizontal Price Fixing
When competitors agree to set the same prices, which is illegal.
Competing gas stations agree to charge the same price for fuel.
Vertical Price Fixing
When manufacturers force retailers to sell at a set price.
A shoe brand tells stores they must sell its sneakers for $100.
Robinson-Patman Act
A law preventing price discrimination that harms competition.
A supplier can’t charge small retailers more than big retailers unfairly.
Minimum-Price Laws
Laws preventing retailers from selling below a set minimum price.
Some states ban selling milk below cost to protect small stores.
Predatory Pricing
Selling below cost to drive competitors out of business.
A big chain sells diapers super cheap to push out small stores.
Loss Leaders
Products sold at a loss to attract customers.
A store sells cheap turkey at Thanksgiving to draw in shoppers.
Unit Pricing
Showing price per unit to help comparison.
A cereal box label shows the cost per ounce.
Item Price Removal
Eliminating price tags and using shelf or scanner prices.
A grocery store stops putting price stickers on each item.
Bait-and-Switch Advertising
Luring customers with low prices, then pushing expensive items.
A store advertises cheap TVs but only sells higher-priced models.
Gray-Market Goods
Legitimate products sold outside authorized channels.
A store sells imported designer handbags cheaper than official retailers.
Market Penetration Pricing
Setting a low initial price to gain market share.
A new streaming service starts at $5/month to attract users.
Market Skimming Pricing
Charging high prices initially to maximize profits.
A new iPhone starts at $1,200 before prices drop later.
Demand-Oriented Pricing
Setting prices based on customer demand.
Concert tickets cost more for front-row seats.
Cost-Oriented Pricing
Pricing based on cost plus a set markup.
A retailer adds 50% to the wholesale price of clothing.
Competition-Oriented Pricing
Setting prices based on competitors’ prices.
A gas station prices fuel 2 cents lower than the station next door.
Price–Quality Association
The belief that higher prices mean better quality.
Consumers assume a $50 bottle of wine is better than a $10 one.
Prestige Pricing
Setting high prices to signal quality and exclusivity.
A luxury watch brand prices its products above competitors.
Markup Pricing
Adding a set amount to the cost of goods.
A store buys shoes for $40 and sells them for $80.
Markup
The difference between cost and selling price.
A jacket costs $20 to make and sells for $50; markup is $30.
Markup Percentage
Markup as a percentage of cost or selling price.
A $10 item sold for $15 has a 50% markup based on cost.
Initial Markup
The first markup when pricing an item.
A sweater originally priced at $50 before any discounts.
Maintained Markup
The final markup after sales and markdowns.
A $50 sweater discounted to $35 has a maintained markup of $15.
Gross Margin
Sales revenue minus the cost of goods sold.
A store makes $100,000 in sales and has $60,000 in costs; gross margin is $40,000.
Variable Markup Policy
Applying different markups to different products.
Electronics get a 20% markup, while clothing gets 50%.
Direct Product Profitability (DPP)
A method analyzing product-level profits.
A retailer measures the true profit of each grocery item, including handling costs.
Customary Pricing
Setting prices based on what customers expect.
Candy bars typically cost around $1, so stores price them that way.
Everyday Low Pricing (EDLP)
Keeping prices consistently low instead of using sales.
Walmart avoids frequent discounts and offers low prices daily.
Variable Pricing
Adjusting prices based on demand and conditions.
Hotel room rates change based on season and occupancy.
Yield Management Pricing
Using flexible pricing to maximize revenue.
Airlines adjust ticket prices based on demand.
One-Price Policy
Charging all customers the same price.
A store sells the same sneakers for $80 to everyone.
Flexible Pricing
Allowing different customers to pay different prices.
Car dealerships negotiate prices with each buyer.
Contingency Pricing
Charging based on results or success.
A lawyer takes a percentage of the settlement instead of an upfront fee.
Odd Pricing
Ending prices in .99 or .95 to seem lower.
A TV priced at $499.99 instead of $500.
Leader Pricing
Selling a popular product at a low price to attract shoppers.
A supermarket sells milk at a low price to increase store traffic.
Multiple-Unit Pricing
Offering a discount for buying in bulk.
“Buy 2, get 1 free” promotions on soda packs.
Bundled Pricing
Selling multiple products together for one price.
A fast-food combo meal includes a burger, fries, and a drink for one price.
Unbundled Pricing
Charging separately for each product or service.
Airlines charging extra for checked bags, seat selection, and meals.
Price Lining
Grouping products at set price points.
A store sells all basic shirts for $20, premium ones for $40, and designer ones for $80.
Markdown
A price reduction to boost sales.
A store lowers prices on winter coats at the end of the season.
Additional Markup
Raising prices after an initial markup.
A popular toy’s price increases due to high demand.
Markdown Percentage
The percentage reduction from the original price.
A $50 item marked down to $40 has a 20% markdown.
Off-Retail Markdown Percentage
Discount percentage based on the original price.
A $100 jacket on sale for $75 has a 25% off-retail markdown.
Additional Markup Percentage
The percentage increase of an additional markup.
A $50 item is raised to $60, which is a 20% additional markup.
Addition to Retail Percentage
The percentage increase added to the current retail price.
A store raises prices by 10% to match inflation.
