Final Exam - Chapter 20 Flashcards
Price
the value paid for a product in a marketing exchange
Barter
the trading of products; oldest form of exchange
Profit Equations
profit = total revenue - total costs
profit = (price X quantity sold) - total costs
Price Competition
emphasizing price as an issue and matching or beating competitors’ prices; must be the low-cost seller; one in industry (ex: Walmart)
Nonprice Competition
emphasizing factors other than price to distinguish a product from competing brands; differentiators (ex: Festival Foods)
Demand Curve
graph of price vs. quantity
Prestige Products
sell better at high prices partly because the expense makes buyers feel elite; vertical parabolic demand curve (ex: Betty Crocker Cookbooks)
Factors that Can Influence Demand
changes in buyers’ needs (family size)
variation in effectiveness of marketing mix variables (ads/promo)
presence of substitutes
dynamic environment changes such as tech. improvements
Price Elasticity of Demand
a measure of the sensitivity of demand to changes in price
Inelastic Demand
price increases, demand decreases by a small amount
ex: healthcare/electricity
Elastic Demand
price increases, demand decreases by large amount
ex: coffee drinks/fast food
Who Sets the Price?
the market!; you need to align your costs/production to live within it (cover costs and meet customer expectations)
Marginal Analysis
what happens to a firm’s costs and revenues when production (or sales volume) changes by one unit
Fixed Costs
costs that do not vary with changes in the number of units produced/sold (ex: rent)
Variable Costs
costs that vary directly with changes in the number of units produced/sold (ex: raw materials used)
Total Costs
the sum of fixed and variable costs
Marginal Cost (MC)
the extra cost incurred by producing one more unit of a product
Marginal Revenue (MR)
the change in total revenue resulting from the sale of an additional unit of product
Rules of Marginal Analysis
MR > MC = add to profit
MC > MR = subtract from profit
8 Factors that Affect Pricing Decisions
organizational and marketing objectives; pricing objectives; costs; other marketing mix variables; channel member expectations; customer interpretation and response; competition; legal and regulatory issues
FAPD Organizational and Marketing Objectives
Prices should be consistent with the organization’s goals, mission and marketing objectives (ex: Walmart and premium prices? Nope.)
FAPD Pricing Objectives
Take share of market; not likely to increase price; set price at or below products of similar quality
FAPD Costs
A marketer should analyze all costs so they can be included in the total cost associated with a product; Cost should not determine price in the long term—price is determined by the market place.
FAPD Other Marketing Mix Variables
ex: price may determine how a product is promoted
FAPD Channel Member Expectations
A marketer must consider what members of the distribution channel expect such as discounts for large orders and prompt payment; Retail Price/Wholesale and Retail discounts
FAPD Customers’ Interpretation and Repsonse
How will our customers interpret our prices and respond to them?
Internal Reference Price
a price developed in the buyer’s mind through experience with the product
External Reference Price
a comparison price provided by others; products we have less experience with
Value Consciousness
concerned about price and quality of a product
Price Consciousness
striving to pay low prices
Prestige Sensitivity
drawn to products that signify prominence and status
FAPD Competition
a marketer must know competitor’s prices, adjust their own prices and assess how competitors will respond
FAPD Legal and Regulatory Issues
price discrimination is employing price differentials that injure competition by giving one or more buyers a competitive advantage is prohibited by law
Issues Unique to Pricing Business Producss
discounts, geographic pricing, transfer pricing
Trade (functional) Discounts
a reduction off the list price a producer gives to an intermediary for performing certain functions
Quantity Discounts
deductions from the list price for purchasing in large quantities
Cumulative Discounts
quantity discounts aggregated over a stated time period (rebates)
Noncumulative Discounts
one time price reductions based on the number of units purchased, the dollar value of the order, or the product mix purchased
Cash Discounts
price reductions given to buyers for prompt payment or cast payment (ex: 2/10 net 30)
Seasonal Discounts
price reduction given to buyers for purchasing goods or services out of season
Allowances
concession in price to achieve a desired goal
Geographic Pricing
reductions for transportation and other costs related to the physical distance between buyer and seller
FOB Factory
is the price of merchandise at the factory before shipment (Price before being shipped) producer pays shipping fee
FOB Destination
is a price indicating the producer is absorbing shipping costs; consumer pays shipping fee
Uniform Geographic Pricing
is charging all customers the same price, regardless of geographic location
Zone Pricing
pricing based on transportation costs within major geographic zones (ex: USPS)
Freight Absorption Pricing
absorption of all or part of actual freight costs by seller
Transfer Pricing
prices charged in sales between an organization’s units (ex: if Festival Foods bakery need a bag of chocolate chips to complete an order)
