Pricing Concepts and Strategies: Establishing Value - Chapter 11

Question 1

What sacrifice are consumers willing to make?

Answer 1

Money that must be paid to seller to acquire product/service

Question 2

Profit Orientation

Answer 2

Company objective that can be implemented by focusing on target profit pricing, maximizing profits, or target return pricing

Question 3

Target profit pricing

Answer 3

Pricing strategy implemented by firms when they have a particular profit goal as their overriding concern; uses price to stimulate a certain level of sales at a certain profit per unit

Question 4

Maximizing profits strategy

Answer 4

Mathematical model that captures all the factors required to explain and predict sales and profits, which should be able to identify the price at which its profits are maximized

Question 5

Target return pricing

Answer 5

Pricing strategy implemented by firms less concerned w the absolute level of profits and more interested in the rate at which their profits are generated relative to their investments; designed to produce a specific return on investment, usually expressed as a % of sales

Question 6

Sales orientation

Answer 6

Company objective based on the belief that increasing sales will help the firm more than will increasing profits

Question 7

Competitor orientation

Answer 7

Company objective based on the premise that the firm should measure itself primarily against its competition

Question 8

Competitive parity

Answer 8

A firm’s strategy of setting pries that are similar to those of major competitors

Question 9

Customer orientation

Answer 9

Pricing orientation that explicitly invokes the concept of customer value and setting prices to match consumer expectations

Question 10

Demand curve

Answer 10

How many units of a product/service consumers will demand during a specific period of time at diff prices

Question 11

Prestige products or services

Answer 11

Those that consumers purchase for status rather than functionality

Question 12

Price elasticity of demand

Answer 12

Measures how changes in a price affect the quantity of the product demanded; specifically, the ratio of the percentage change in quantity demanded to the percentage change in price

Question 13

Elastic

Answer 13

A market for a product/service that is price sensitive

Question 14

Income effect

Answer 14

The change in the quantity of a product demanded by consumers bc of a change in their income

Question 15

Substitution effect

Answer 15

Consumers’ ability to substitute other products for the focal brand, thus increasing the price elasticity of demand for the focal brand

Question 16

Cross price elasticity

Answer 16

% change in demand for Product A that occurs in response to a % change in price of Product B

Question 17

Complementary products

Answer 17

Products whose demand curves are positively related, such that they rise or fall together; a % increase in demand for 1 results in a % increase in demand for the other

Question 18

Variable costs

Answer 18

Costs, primarily labour and materials, that vary w production volume. As a firm produces more or less of a good/service, the total variable costs increase or decrease at the same time

Question 19

Fixed costs

Answer 19

Costs that remain essentially at the same level, regardless of any changes in the volume of production

Question 20

Total cost

Answer 20

The sum of the variable and fixed costs

Question 21

Break even pt

Answer 21

Pt at which the # of units sold generates just enough revenue to = the total costs

Question 22

Contribution per unit

Answer 22

Equals the price less the variable cost per unit;
used to determine the break even pt in units

Question 23

What is the Break Even point eqn?

Answer 23

Break even point (units) = Fixed Costs / Contribution per unit

Question 24

What are the 4 levels of competition?

Answer 24

Monopoly
Oligopoly
Monopolistic competiton
Pure competition

Question 25

Monopoly

Answer 25

1 firm provides the product/service in a particular industry, results in less price competition

Question 26

Oligopoly

Answer 26

Only a few firms dominate

Question 27

Price war

Answer 27

When 2 or more firms compete primarily by lowering their prices

Question 28

Monopolistic competition

Answer 28

Occurs when many firms sell closely related but not homogeneous products; these products may be viewed as substitutes but are not perfect substitutes

Question 29

Pure competition

Answer 29

Consumers perceive a large # of sellers of standardized products or commodities as substitutable, such as grains.

Question 30

Grey market :

Answer 30

Employs irregular but not necessarily illegal methods; generally, it legally circumvents authorized channels of distribution to sell goods at prices lower than those intended by the manufacturer.

Question 31

What are the 3 approaches to developing pricing strategies

Answer 31

1. Cost based methods
2. Competition based methods
3. Value based methods

Question 32

Cost based pricing method :

Answer 32

Determines the final price to charge by starting w the cost.

Question 33

Competitor based pricing method :

Answer 33

Approach that attempts to reflect how the firm wants consumers to interpret its products relative to the competitors’ offerings

Question 34

Value based pricing method :

Answer 34

Approach to setting prices that focuses on the overall value of the product offering as perceived by the consumer

Question 35

Improvement value :

Answer 35

Rep an estimate of how much more or less consumers are willing to pay for a product relative to other comparable products.

Question 36

Cost of ownership method :

Answer 36

A value based method for setting prices that determines the total cost of owning the product over its useful life

Question 37

EDLP

Answer 37

Strategy companies use to emphasize the continuity of their retail prices at a level somewhere between the regular, console price and the deep discount sale prices their competitors may offer

Question 38

High low pricing strategy :

Answer 38

Relies on the promotion of sales, during which prices are temp reduced to encourage purchases

Question 39

Price skimming :

Answer 39

Appeals to these segments of consumers who r willing to pay the premium price to have the innovation first.

Question 40

Market penetration pricing :

Answer 40

Sets the initial price low for the intro of the new product/service

Question 41

Experience curve effect :

Answer 41

Refers to the drop in unit cost as the accumulated volume sold increases, as sales continue to grow, the costs continue to drop, allowing even further reductions in the price

Question 42

Shrinkflation

Answer 42

Decrease food package sizes while leaving prices unchanged

Question 43

Pricing strategy :

Answer 43

Long term approach to setting prices broadly in an integrative effort based on the 5 Cs of pricing.

Question 44

Pricing tactics :

Answer 44

Offer short term methods to focus on select components of the 5 Cs.

Question 45

Price lining :

Answer 45

Consumer market pricing tactic of establishing a price floor and a price ceiling for an entire line of similar products and then setting a few other price pts in between to rep distinct diff in quality

Question 46

Price bundling :

Answer 46

Consumer pricing tactic of selling more than 1 product for a single, lower price than the items would cost sold separately

Question 47

Leader pricing :

Answer 47

Tactic that attempts to build store traffic by aggressively pricing and advertising a regularly purchased item

Question 48

Markdowns :

Answer 48

Reductions retailers take on the initial selling price of the product/service

Question 49

Advertising allowance :

Answer 49

Offers a price reduction to channel members if they agree to feature the manufacturer’s product in their advertising and promotional efforts

Question 50

Size discount :

Answer 50

The most common implementation of a quantity discount at the consumer level

Question 51

Seasons discount :

Answer 51

Additional reduction offered as an incentive to retailers to order merchandise in advance of the normal buying season

Question 52

Listing allowances :

Answer 52

Fees paid to retailer simply to get new products into stores or to gain more or better shelf space for their products.

Question 53

Quantity discount :

Answer 53

Provides a reduced price according to the amt purchased

Question 54

Cumulative quantity discount :

Answer 54

Uses the amt purchased over a specified time period and usually involves several transactions.

Question 55

Noncumulative quantity discount :

Answer 55

Pricing tactic that offers a discount based on only the amt purchased in a single order

Question 56

Uniform delivered pricing :

Answer 56

The shipper charges 1 rate, no matter where the buyer is located

Question 57

Geographic pricing :

Answer 57

Setting of diff prices depending on a geographical division of the delivery areas

Question 58

Predatory Pricing

Answer 58

When a firm sets a very low price for 1 or more of its products w the intent to drive its competition out of business

Question 59

Price Fixing

Answer 59

Practice of colluding with other firms to control prices