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Marketing and Sales > Chapter 19: Pricing Concepts > Flashcards

Chapter 19: Pricing Concepts Flashcards

1
Q

What is the purpose of creating a pricing infrastructure in a company?

A
  1. Defining pricing goals
  2. Creating customer value
  3. Assigning responsibility for pricing
  4. Improving pricing tools and systems
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2
Q

Why is price setting a significant challenge for marketing managers?

A

Because it impacts the firm’s bottom line and involves setting the right price to balance revenue and customer satisfaction

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3
Q

What is the ‘value’ in terms of price?

A

It’s based on perceived satisfaction, where consumers seek reasonable value at purchase

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3
Q

How is ‘price’ defined in marketing?

A

As the amount given up in exchange for acquiring a good or service

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4
Q

How does the ‘information effect’ influence consumer perception of price?

A

Consumers may infer quality from price; higher prices can imply higher quality, prestige, or status

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5
Q

What is the ‘sacrifice effect’ of price?

A

It reflects the consumers’ trade-offs, usually money, time, or other products foregone

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6
Q

How is revenue calculated?

A

Revenue equals the price charged multiplied by the number of units sold

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7
Q

What are the characteristics of effective pricing objectives?

A

Objectives should be specific, attainable, and measurable

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7
Q

What must managers consider to achieve profitability?

A

They must select a price that aligns with perceived value without being too high or low

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8
Q

What is ‘profit maximization’?

A

Setting prices to maximize revenue relative to costs while staying competitive

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9
Q

What are ‘satisfactory profits’?

A

Profits that are adequate for stockholders and management, based on industry risk

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10
Q

How is ‘target return on investment’ (ROI) used in pricing?

A

By setting prices to achieve a desired ROI, often compared to industry standards

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11
Q

What is ‘market share’ in sales-oriented objectives?

A

The percentage of a company’s sales relative to total industry sales

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11
Q

What is ‘status quo pricing’?

A

A strategy that maintains existing prices or matches competitors’ prices

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12
Q

What is ‘sales maximization’?

A

Focusing on maximizing sales volume, often ignoring profit or competition factors

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13
Q

What is ‘demand’ in pricing?

A

The quantity of a product that will be sold at various prices over a set period

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14
Q

What is dynamic pricing?

A

The ability to adjust prices quickly, often in real-time, in response to market demand

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14
Q

How does ‘elasticity of deman’ impact pricing?

A

It measures consumer sensitivity to price changes, affecting demand based on price shifts

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15
Q

What are variable and fixed costs?

A

Variable costs change with output
Fixed costs remain constant regardless of output

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16
Q

How does AI improve dynamic pricing?

A

By using large amounts of data to personalize pricing based on consumer behavior and market trends

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16
Q

What is markup pricing?

A

Setting prices by adding profit and expenses to the cost of purchasing the product

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17
Q

What is break-even pricing?

A

Determining the sales volume needed to cover total costs

18
Q

How does the internet affect pricing strategies?

A

It increases price transparency, allowing consumers to compare prices easily and driving competitive pricing

19
Q

How does the product life cycle affect pricing?

A

Prices often start high in the introductory stage and may decrease in maturity and decline stages

20
Q

What role does competition play in pricing?

A

It influences prices through market dynamics, potentially leading to price matching and customer loyalty efforts

21
Q

What are the steps in setting the right price on a product?

A
  1. Establish pricing goals
  2. Estimate demand, costs & profits
  3. Choose a price strategy to determine the base price
  4. Fine-tune the base price with pricing tactics
22
Q

What is the relationship between price and quality perception?

A

High prices often lead consumers to assume better quality, particularly in uncertain purchasing situations

23
Q

What are the 3 categories of pricing objectives?

A
  1. Profit-oriented
  2. Sales-oriented
  3. Status quo
24
Q

What is common trade-off for the profit-maximization pricing objective?

A

It may require a larger initial investment than the firm can or wants to commit to

25
Q

What is the trade-off of pursuing a market-share objective?

A

It often involves sacrificing short-term profit to meet long-term goals, which may not be achieved without careful management

26
Q

What is a major advantage and disadvantage of the status quo pricing goal?

A
  • Advantage: easiest to implement
  • Disadvantage: it may ignore demand and costs
27
Q

What factors influence total revenue in relation to pricing?

A

Total revenue is a function of price and quantity demanded, which depends on demand elasticity

28
Q

After establishing pricing goals, what should managers estimate next?

A
  1. Total revenue at various prices
  2. Determine costs for each price
  3. Estimate possible profit and market share for each price
29
Q

What is price skimming?

A

A pricing policy where a high introductory price is charged, often with heavy promotion, usually for new products with unique advantages

29
Q

What is a price strategy?

A

A long-term pricing framework that sets the initial price and direction for price changes over the product’s life cycle

30
Q

Under what conditions is price skimming most effective?

A
  1. When there’s strong demand
  2. The product has legal protections
  3. Represents a technological breakthrough
  4. Blocks competitor entry
31
Q

What is penetration pricing?

A

A policy where a firm charges a relatively low price initiallyy to reach a mass market?

32
Q

What is status quo pricing?

A

Setting a price identical or very close tot he competitions’ price, which is simple but may overlook demand and costs

33
Q

What are the pros and cons of penetration pricing?

A
  • Pros: effective in price-sensitive markets, discourages competitions
  • Cons: lower profit per unit, requires higher sales volume to reach break-even
34
Q

What is a cumulative quantity discount?

A

A price reduction that applies to a buyer’s total purchases over a specific period to encourage customer loyalty

34
Q

What is a base price?

A

The general price level at which a company expects to sell its product or service

35
Q

Name some fine-tuning techniques for base pricing

A
  1. Discounts
  2. Allowances
  3. Rebates
  4. Value-based pricing
36
Q

What is a cash discount?

A

A price reduction offered to customers for promt payment of a bill

37
Q

What is value-based pricing?

A

Pricing at a level that customers perceive as a good price based on the value compared to other options

38
Q

What is uniform delivered pricing?

A

The seller pays the actual freight charges but bills every purchaser a flat rate for shipping

38
Q

What is FOB origin pricing?

A

A pricing tactic where the buyer absorbs the freight costs from the shipping point

39
Q

What is the single-price tactic?

A

Offering all goods/services at the same price, or sometimes at one of two or three set prices

40
Q

What is flexible pricing?

A

Different customers pay different prices for the same merchandise in equal quantities, allowing price adjustments for competition

41
Q

What is price lining?

A

Offering a product line with several items at specific price points to reduce consumer confusion and simplify purchasing

42
Q

What is leader pricing?

A

Selling a product near or below cost to attract shoppers, hoping they’ll buy other items

43
Q

What is odd-even pricing?

A

Setting prices at odd numbers to suggest bargains and even numbers to imply quality

44
Q

What is price bundling?

A

Marketing 2 or more products in a single package for a special price to stimulate demand

45
Q

What is predatory pricing?

A

Setting very low prices with the intent of driving competitors out of the market, then raising prices

Marketing and Sales (12 decks)

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