Chapter 19&20 exam review Flashcards
the value paid for a product in a marketing exchange
Price
oldest form of trad; money may not be involved
Barter
profit=
profit=
total revenue - total costs
(price x quantity) - total costs
emphasizing price as an issue and matching or beating competitors’ prices; flexibility is an advantage; to compete effectively, a firm must be the low-cost seller; price war with competitors is a danger
Price Competition
emphasizing factors other than price to distinguish a product from competing brands; can help a firm build customer loyalty; a firm must be able to distinguish its brand; even in nonprice competition, marketers must be aware of competitors’ brands
nonprice competition
for most products, there is an inverse relationship between price and demand
The Demand Curve
Changes in buyer’s needs, variations in effectiveness of marketing, presence of substitutes, dynamic environmental factors, seasonality are all examples of
Demand Fluctuations
a measure of the sensitivity of demand to the changes in price
Price Elasticity of Demand
a change in price causes an opposite change in total revenue
elastic demand
a change in price results in a parallel change in total revenu
Inelastic demand
Availability of substitutes, amount of income available to spend on goods, and time are all factors that effect
Elasticity of Demand
examines what happens to a firm’s cost and revenues when production or sales change by one unit
Marginal Analysis
do not vary with changes in the number of units produced or sold
fixed costs
the fixed cost per unit produced
average fixed cost
the sum of the average fixed cost and the average variable cost, times the quantity produced
total costs
vary with changes in the number of units produced or sold
variable costs
the variable cost per unit produced
average variable cost
the sum of the average fixed cost and the average variable cost
average total cost
the extra cost a firm incurs when it produces one more unit of a product
Marginal Cost (MC)
the change in total revenue that occurs when a firm sells an additional unit of a product
Marginal Revenue (MR)
the point at which the cost of producing a product equal the revenue made from selling the product.
Break-even point
BE=
fixed costs/ per unit contribution to fixed costs aka(Price-Variable Costs)
9 categories of factors that affect pricing decisions are
- organizational and marketing objectives 2. Pricing Objectives 3. Costs 4. Other marketing mix variables 5. channel members expectations 6. Customer’s interpretations and response 7. Reference Prices 8. Competition 9. Legal and regulatory issues
marketers should set prices that are consistent with the organization’s goals and mission; Pricing decisions should be compatible with the firm’s marketing objectives
Organizational and Marketing Objectives
costs are a crucial issue when establishing price; ideally, goods are sold above costs, exceptions (in the short-term) are: to match competition, to generate cash, to increase market share; marketers must be certain to include all costs when calculating price; cost reduction has been a major focus for marketers
Costs
all marketing mix variables are highly interrelated; price can affect demand; price is linked to how it is distributed; promotions vary by price of goods.
other marketing mix variables
channel members often expect to receive discounts for large orders and prompt payments; Resellers expect producers to provide support activities such as sales and service training and cooperative advertising; producers must consider the associated costs of discounts and support activities
Channel members expectations
what price means or communicates to customers
Customer Interpretation
whether the price moves the customer closer to purchase and the degree to which the price enhances satisfaction with the purchase experience and product
Customer Response
a price developing in the buyer’s mind through experience with a product
internal reference price
a comparison price provided by others
external reference price
concerned about both price and quality of a product
Value-Conscious
strive to always pay low prices
price-conscious
focus on products that signify prominence and status
Prestige-conscious
must know competitors’ prices so it can adjust price accordingly; price adjustments must be assessed in terms of competitor’s response
Competition
to control inflation, the U.S. federal government may enact: price controls or price freezes; the U.S. has many laws affecting pricing
Legal and Regulatory Issues
to control the rate of price increases
Price freezes
a reduction off the list price a producer gives to an intermediary for performing certain functions
Trade (functional) discounts
a reduction from the list price for purchasing in large quantities
quantity discount
are aggregated over a stated time period
cumulative
are onetime price reductions based on the number of units purchased, the dollar value of the order or the product mix purchased
non-cumulative
two types of quantity discounts
Cumulative, non-cumulative
price reductions given to buyers for prompt payment or cash payment
Cash discounts
price reduction given to buyers for purchasing goods or services out of season
seasonal discounts
a concession in price to achieve a desired goal
Allowance
a reduction for transportation costs or other costs associated with the physical distance between the buyer and the seller
Geographic Pricing
the price of the merchandise at the factory
Free on Board (F.O.B.) Factory
the producer cost of shipping the merchandise to the customer
F.O.B. Destination
the same price is charged to customers in all geographic locations
uniform geographic (postage-stamp pricing)
uniform prices for each major geographic zone
Zone pricing
includes the price at the factory, plus freight to the nearest buyer
Base-point pricing
the seller absorbs the freight costs
Freight Absorption pricing
occurs when one unit in an organization sells a product to another unit
Transfer Pricing
dividing all fixed and variable expenses by the number of units produced
actual full cost
what it would cost to produce the goods at full plant capacity
standard full cost
full cost plus a portion of the selling unit’s assets
cost-plus investment
the market price less a discount to reflect expenses
market-based cost
what are the 6 steps of the price-setting process
1) development of pricing objectives 2) assessment of the target market’s evaluation of Price 3) Evaluation of Competitors’ prices 4) selection of a basis for pricing 5) selection of a pricing strategy 6) determination of a specific price: pricing strategy
goals that describe what a firm wants to achieve through pricing; should be consistent with organizational and marketing objectives; can be short-term or long-term and marketers can employ multiple pricing objectives
development of pricing objectives
survival: adjust price levels so the firm can increase sales volume to match organizational expenses profit return on investment market share cash flow status quo product quality
Pricing Objectives
importance of price depends on type of product, types of target market, and the purchase situation; value combines a product’s price and quality attributes; customers use value to differentiate between competing brands
Assessment of the target Market’s evaluation of price
What are the 3 dimensions for the selection of basis for pricing
Cost, demand, competition-based pricing
adding a dollar amount or percentage to the cost of production
cost-based pricing
determine the sellers’ cost and add a specified dollar to it
cost-plus pricing
adding a predetermined percentage of the cost to the price of the product
markup pricing
customers pay a higher price when demand for the product is strong and a lower price when demand is weak
marketers must be able to calculate how much customers will buy at different points
Demand
Pricing influenced by competitors’ pricing; importance of this method increases when: competing prices are homogeneous, organization is serving markets in which price is a key consideration; may necessitate frequent price adjustments
Competition-based pricing
an approach of course designed to achieve pricing and marketing objectives
Pricing strategy
charging different prices to different buyers for the same quality and quantity of product
differential pricing
final price established through buyer/ seller bargaining
negotiated pricing
one price for primary target market and a different price for another market
secondary-marketing pricing
systematic or patterns temporary price reductions
periodic discount pricing
unsystematic temporary price reductions
Random discounting Pricing
setting the price for new products is one of the most fundamental decisions in the marketing mix
new-product pricing
changing the highest possible price that buyers who most desire the product will pay
Price skimming
setting the price below competing brands to penetrate a market and gain market share quickly
penetration pricing
establishing and adjusting prices of multiple products within a product line
product-line pricing
basic product in a product line is priced low while required related items are priced higher
Captive pricing
giving the highest- quality products a line the highest prices
premium pricing
low pricing on one item in a line with the intention of selling higher-priced items in the line
bait pricing
limited the number of prices for selected lines of merchandise
Price lining
attempts to influence a customer’s perception of price to make the product’s price more attractive
psychological pricing techniques
positioning a moderately priced item next to a more expensive brand to make it seem lower in price
Reference Pricing
packaging complementary products to be sold at a single price
bundle pricing
packaging together two or more identical products to be sold at a single price
multiple-unit pricing
setting a low price on products on a consistent basis
Everyday Low Prices (ELP)
ending the price with certain numbers that influence buyers’ perceptions of the price
odd-even pricing
pricing certain goods on the basis of tradition
Customary Pricing
setting prices at an artificially high level to prestige or high quality
Prestige Pricing
used by people with great skill or experience in a field or activity; do not relate to the time or effort expended; a standard fee
Professional Pricing
price is often coordinated with promotion
promotion pricing
products priced below the usual markup, near cost, or below cost
Price leader
advertised sales or price-cutting is used to increase sales volume and is linked to a holiday, a season, or other events
special-event pricing
the pricing of a product at a specific level and simultaneously comparing it to a higher price
comparison discounting
the final stage in the price-setting process; yields a certain price, which may need refining; helps in setting final price; in absence of government controls, pricing remains, and a convenient way to adjust the marketing mix
determination of a specific price: Pricing Strategy
