Domain 6: Manage Pricing Decisions Flashcards
Establishing a competitive advantage by having the lowest cost of operation in the industry. Cost leadership is often driven by company efficiency, size, scale, scope and cumulative experience (learning curve).
Cost Leadership
A marketing strategy used by businesses to attract customers to a new product or service.
Penetration Pricing
Represents the percentage of an industry, or market’s total sales, that is earned by a particular company over a specified time period.
Market Share
A product pricing strategy by which a firm charges the highest initial price that customers will pay and lowers it over time.
Price Skimming
The short run or long run process by which a firm may determine the price, input, and output levels that lead to the greatest profit.
Profit Maximization
Is a pricing model that prices a business based on what an investor would want to make from any capital invested in the company.
Target ROI
A measure of the change in the quantity demanded or purchased of a product in relation to its price change.
Price elasticity of demand
Involves the setting of prices based on what rivals are charging.
Competitor-based pricing
A competitive exchange among rival companies who lower prices to undercut one another.
Price war
The situation whereby the prices of goods and services offered in the marketplace either change very slowly or do not change at all.
Price stability
A price-setting strategy where prices are set primarily on a consumers’ perceived value of the product or service.
Value-based pricing
AKA price lining, a marketing process wherein products or services within a specific group are set at different price points. The higher the price, the higher the perceived quality to the consumer.
Product line pricing
Prices at which demand for a given product is supposed to stay relatively high.
Price Points
A method in which one of two or more complementary products (a deskjet printer, for example) is priced to maximize sales volume, while the complementary product (printer ink cartridges) are priced at a much higher level in order to cover any shortfall sustained by the first product.
Captive pricing (or complementary pricing)
Combining several products or services into a single comprehensive package for an all-inclusive reduced price. Despite the fact that the items are sold for discounted prices, it can increase profits because it promotes the purchase of more than one item.
Price bundling
The price that a purchaser announces that it is willing to pay for a good or service. It is used by high-volume purchasers to inform suppliers. Requires consumers to have access to price and quality information, which is not general practice in many industries. Further, it does not help consumers with urgent needs, cognitive and/or other impairments.
Reference pricing
Marketing strategy where prices are set higher than normal because lower prices will hurt instead of helping sales, such as for high-end perfumes, jewelry, clothing, cars, etc. Also called image pricing.
Prestige pricing
This method involves setting a price in odd numbers (just under round even numbers) such as $49.95 instead of $50.00. Originally, this practice was meant to prevent pilfering of cash by forcing a cashier to open the cash-register (to pay change to the customer) and thus register the transaction.
Odd pricing
Pricing at even numbers instead of odd numbers. Besides quantity, Even pricing can be used to denote quality. Pricing at 99 or 49 has become so common, that pricing at even values can be a standout from the crowd. However, even pricing is used very seldom and in the combination of Odd even pricing, odd pricing takes the upper hand.
Even pricing
Based on the belief that certain prices or price ranges are more appealing to buyers.
Psychological pricing
A strategy in which the seller offers the same price to every customer. In other words, the price does not vary according to payment method or promotional offers.
One-price strategy
A pricing strategy in which the price of a good or service may vary based on region, sales location, date, or other factors. Variable pricing strategies adjust product prices to achieve optimal balances between sales volume and income per unit sold based on the characteristics of different categories of points-of-sale.
Variable pricing
A pricing strategy promising consumers a low price without the need to wait for sale price events or comparison shopping.
Everyday low pricing (EDLP)
A type of pricing strategy adopted by companies, usually small and medium-sized retail firms, where a firm charges a high price for an item and later when the item’s popularity has passed, sell it to customers by giving discounts or through clearance sales.
High/low pricing
Common name for several types of sales where the price is neither set nor arrived at by negotiation, but is discovered through the process of competitive and open bidding. T
Auction pricing
Several buyers bid for one seller’s good(s).
Forward auction
Auctions in which several sellers bid for one buyer’s order.
Reverse auctions
A cost-based method for setting the prices of goods and services. Under this approach, you add together the direct material cost, direct labor cost, and overhead costs for a product, and add to it a markup percentage (to create a profit margin) in order to derive the price of the product.
Cost-plus pricing
Using this method, markup is reflected as a percentage by which initial price is set above product cost as reflected in this formula: markup amount/item cost=markup percentage. The item is marked up by a certain percentage.
Markup on cost
Markup is viewed as a percentage of the selling price and not as a percentage of cost as it is with the Markup-on-Cost method. In this method, markup is calculated thus: markup amount/selling price=markup percentage.
Markup on sales price
A pricing strategy that regulators impose on certain businesses to limit what they are able to charge consumers for its products or services to a price equal to the costs necessary to create the product or service. This implies that businesses will set the unit price of a product relatively close to the average cost needed to produce it.
Average cost pricing
The process of setting an item’s price by using an equation to compute the price that will result in a certain level of planned profit given the sale of a specified amount of items.
Target return pricing
Offering of a product or a service at a price lesser than the marked or the original price.
Discounts
Another type of reduction from the list price. For example, trade-in allowances are price reductions given for turning in an old item when buying a new one. Trade-in allowances are most common in the car industry, but are also given for other durable goods. Promotional allowances are payments or price reductions to reward dealers for participating in advertising and sales-support programs.
Allowances
A deduction allowed by the seller of goods or by the provider of services in order to motivate the customer to pay within a specified time. The seller or provider often refers to the cash discount as a sales discount. The buyer often refers to the same discount as a purchase discount.
Cash discount
An amount or rate by which the catalog, list, or retail price of an item is reduced when sold to a reseller. This reflects the reseller’s profit margin and usually varies directly with the quantity of the item purchased.
Trade discounts
An incentive offered to a buyer that results in a decreased cost per unit of goods or materials when purchased in greater numbers. This is often offered by sellers to entice buyers to purchase in larger quantities.
Quantity discounts
A discount which is offered on seasonal goods or at particular seasons.
Seasonal discounts
Compensation offered by the manufacturer to the retailer for promoting a product or service.
Promotional allowances
A term in international commercial law specifying at what point respective obligations, costs, and risk involved in the delivery of goods shift from the seller to the buyer under the Incoterms standard published by the International Chamber of Commerce.
Also used in modern domestic shipping within the United States to describe the point at which a seller is no longer responsible for shipping cost.
Free on Board (FOB) Pricing
- Pricing that includes all transportation costs and where the seller retains the title to the goods until they are delivered to the customer. Two basic kinds of UDP are: (1) Single-zone pricing where all customers, irrespective of their distance from the seller, pay the same delivered price. Also called postage stamp pricing. (2) Multi-zone pricing where a geographic area is divided into zones according to the distance from the seller’s dispatch point. Whereas different prices are charged for different zones, prices remain the same within a zone.
Uniform delivered pricing
The process of setting prices for goods or services based on the location where they will be offered for sale to consumers. In using a zone pricing strategy, a company typically keeps its prices to distributors consistent within a particular zone but will usually raise its prices within zones that are further away from its manufacturing facilities to help account for higher transport costs.
Zone pricing
The amount something must be changed in order for a difference to be noticeable, detectable at least half the time (absolute threshold).
Just-noticeable difference
An agreement between participants on the same side in a market to buy or sell a product, service, or commodity only at a fixed price, or maintain the market conditions such that the price is maintained at a given level by controlling supply and demand.
Price-fixing
A pricing strategy that charges customers different prices for the same product or service. In pure price discrimination, the seller charges each customer the maximum price that he is willing to pay.
Price discrimination
The method by which retailers use deceptive means to trick the customers into thinking that they are paying a lower price for the product than what they are actually supposed to.
Deceptive pricing
A sales tactic that lures customers with low prices on unavailable items with the aim of upselling them on a similar, pricier item. It is considered a form of retail sales fraud, though it takes place in other contexts. While many countries have laws against using bait and switch tactics not all occurrences constitute fraud.
Bait and switch
The illegal act of setting prices low in an attempt to eliminate the competition. Breaks anti-trust laws, as it makes markets more vulnerable to a monopoly.
Predatory pricing
Protect businesses and governments from companies or countries attempting to dump goods into a marketplace at low prices or with unfair subsidies.
Fair trade laws
Prohibits selling items of merchandise below cost.
Minimum markup laws
Product or services that are offered at a price that is not profitable, but is sold or offered in order to attract new customers or to sell additional products and services to those customers. This is a common practice when a business first enters a market. Essentially, a loss leader introduces new customers to a service or product in the hope of building a customer base and securing future recurring revenue.
Loss leader products
