Pricing Terminology (10) Flashcards
a _______ is what is being charged or exchanged for a product or service
price
What is price?
what is being charged or exchanged for a product or service
What is value?
What a product or service is worth to a consumer, or the maximum amount a consumer would pay
Value is what a product or service is ______ to a consumer
worth
Price is what is being ______ or exchanged for a product or service
charged
What are fixed costs?
costs associated with the operating and marketing expenses of a company
Fixed costs are costs associated with…
the operating and marketing expenses of a company
Fixed costs are the costs associated with the _______ and _______ expenses of a company
operating, marketing
Do fixed costs change with the number of products sold?
No
an example of this type of cost is the cost of renting a warehouse to store product
fixed costs
Fixed costs ____ ____ over the number of units sold
spread out
What are variable costs?
the per-unit costs associated with the product.
the per-unit costs associated with the product are called…
variable costs
what is an example of variable costs?
the cost of material to make the product. If it costs $1 in material to make a widget, then it costs the company $1 in variable costs each time it produces a widget.
the breakeven point for a product is…
the point at which revenues equal expenses
what is a breakeven quantity?
A breakeven quantity is the quantity the company needs to sell at a certain price in order to cover fixed costs.
A breakeven quantity is the quantity the company needs to ______ at a certain price in order to cover ______ costs.
sell, fixed
Thr breakeven price is the amount…
the amount a marketer needs to price a product in order to cover expenses at a certain quantity sold.
The amount a marketer needs to price a product in order to cover expenses at a certain quantitiy sold is called…
breakeven price
the quantity the company needs to sell at a certain price in order to cover fixed costs is called…
breakeven quantity
What is the first step to developing a pricing structure?
how there particular industry behaves with prices
What are the two general types of industries for pricing?
dumb industry
price industry
What happens in a dumb industry?
companies tend to compete for price
In a dumb industry companies…
tend to compete for price
What is a company’s main strategy for winning customers in a dumb industry?
its main differentiator is to simply have the lowest price.
Competition for the lowest priced product is called…
price wars
what is a “price sensitive” customer greatly influecned by?
the price of the product
In which price market do you find price senstive buyers?
dumb
Dumb markets lead to…
price sensitive customers and price wars
price sensitivity means that…
purchases are greatly influenced by the price of the product
What happens in a smart industry?
In a smart industry, companies tend to use more complex pricing structures and use more pricing options.
Is there less or more head-to head competition with price in a smart market?
less
Customers buying in a smart market are usually _____ price sensitive
less
What is price elasticity?
the change in demand in a market in response to a product’s change in price.
the change in demand in a market in response to a product’s change in price is called…
price elasticity
Price elasticity is the change in ______ in a market in response to a product’s change in _____.
demand, price
A market is considered elastic if….
a change in price produces a substantial change in demand.
a market is inelastic if…
a change in prices results in little to no change in demand.
When a change in prices results in little to no change in demand this is called…
an inelastic market
whan a market is inelastic a change in _____ results in ____ change in demand.
little
when a market is elastic a change in prices results in ______ change in demand.
substantial
Fill in the blanks
- inelastic 2. elastic 3. inelastic 4. elastic
How is price elasticity calculated?
% of change in quantity sold / % change in price
A price elasticity calculation of < -1 is considered ______
elastic
For example, let’s say the price of a widget is $5, and the marketer increases the price by 20% to $6. As a result, the quantity sold (demand) falls from 100 units to 50 units, or the quantity changes by -50%.
The calculation for this is: -50% / 20%
PE = -2.5
This amount is LESS THAN -1. Therefore, the price is elastic.
A price elasticity calculation of > -1 is considered ______
elastic
if a marketer sells a product in a market that is price inelastic, then…
the marketer can adjust the price upward without it affecting demand as much.
If prices increase and demand stays the same, this means the overall profits will increase. However, a marketer cannot increase prices infinitely without it eventually having a negative impact on the company.
if prices increase and demand stays the same, this means the overall profits will _____.
increase
However, a marketer cannot increase prices infinitely without it eventually having a negative impact on the company.
if a marketer sells a product in a market that is price elastic, then…
price increases will result in a significant decrease in demand, decreasing overall profits.
what is an industry example of an inelastic market?
cigarette sales
price elasticity in cigarette sales has been found to be between -.3 and -.6 overall. That is considered to be an inelastic price elasticity for demand, meaning that as cigarette prices increase, demand does not decrease very much.
what is an industry example of an elastic market?
leisure airline travel
leisure airline travel in the US has a price elasticity of approximately -1.5, which is elastic. This means that as airline ticket prices increase, demand for plane tickets for leisure travel decreases.
