Pricing Flashcards
Price
The amount of something -money, time, or effort- that a buyer exchanges with a seller to obtain a product
Revenue
The result of the price charged to customers multiplied by the number of units sold
Profits
Revenue minus total costs
The six steps of the price-setting process are…
Define the pricing objectives, Evaluate demand, Determine the costs, Analyze the competitive price
environment, Choose a price, Monitor and evaluate the effectiveness of the price
Profit Maximization
A pricing strategy that involves setting a relatively high price for a period of time after the product launches
Volume Maximization
A pricing strategy that involves setting prices low to encourage a greater volume of purchases
Survival Pricing
A pricing strategy that involves setting prices low to the point which revenue just covers costs, allowing the firm to endure during a difficult time
Marginal Revenue
The change in total revenue that results from selling one additional unit of product
Marginal Cost
The change in total cost that results from selling one additional unit of product
Price Sensitivity
The degree to which the price of a product affects consumers’ purchasing behavior
Price Elasticity of Demand
A measure of price sensitivity that gives the percentage change in quantity demanded in response to a percentage change in price (holding constant all the other determinants of demand, such as income)
Elastic Demand
A scenario in which demand changes significantly due to a small change in price
Inelastic Demand
A situation in which a specific change in price causes only a small change in the amount purchased
Fixed Costs
Costs that remain constant and do not vary based on the number of units produced or sold
Variable Costs
Costs that vary depending on number of units produced or sold
