52 terms

Marketing: Chapter 12

Ratio of perceived benefits to price
Money or other considerations exchanged for ownership or use of a good or service
Break-even point
The quantity at which total revenue equals total cost
Fixed costs
Expenses that do not change with quantity produced
Variable costs
Expenses that vary directly with the quantity of product produced
Total revenue
All the money received from the sale of a product, or price multiplied by quantity sold
Pricing objectives
Role that price will play in an organization's marketing and strategic plans
total revenue-total cost
four approaches to selecting approximate price level
Demand-oriented approaches, cost-oriented approaches, profit oriented approaches, competition-oriented approaches
(demand-oriented approach), help the company recover costs of development as well as capitalize on the price insensitivity of early buyers
penetration pricing
(demand-oriented approach), setting a low initial price on a product to appeal immediately to the mass market. low price discourages competitors from entering market
prestige pricing
(demand-oriented approach), setting a high price so that quality- or status-conscious consumers will be attracted to the product and buy it
odd-even pricing
(demand-oriented approach), This is charging one dollar or one cent below an even number so your consumers perceive your product as being more inexpensive.
target pricing
(demand-oriented approach), A 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. uses retailer markup to estimate cost and value of a product
bundle pricing
a pricing technique in which several complementary products are sold at a single price
yield management pricing
(demand-oriented approach), a system of maximizing revenue through adjusting room rates according to demand
standard markup pricing
(cost-oriented approach) adding fixed percentage to the cost of all items in a specific product. often result of too many products to estimate the demand for price setting
cost-plus pricing
(cost-oriented approach), This is a pricing strategy whereby you add a fixed dollar amount to the wholesale price of a service (or good).
target profit pricing
(profit oriented approach) a firm sets an annual target of a specific dollar volume of profit
target return on sales pricing
(profit oriented approach) set prices that will give them a profit that is a specified percentage of the sales volume
target return on investment pricing
(profit oriented approach) set prices to achieve a ROI target such as a percentage that is mandated by its board of directors or regulators
customary pricing
(competition-oriented approach) tradition, a standardized channel of distribution, or other competitive factors dictate the price
above-, at-, or below- market pricing
(competition-oriented approach) market price is what customers are generally willing to pay, not necessarily the price that the firm sets, the firm uses this to set the price based on competitors, etc.
(competition-oriented approach) deliberately sell a product below its customary price for a special promotion not to increase sales but to attract customers in hopes they will buy other products as well (particularly the discretionary items with large markups
the demand curve
graph relating quantity sold and price, which shows how many units will be sold at a given price
key factors in estimating demand (in addition to price)
consumer tastes, availability of similar products, consumer income
price elasticity of demand
the percentage change in the quantity demanded relative to a percentage change in price
elastic demand
a slight decrease in price results in a relatively large increase in demand, or units sold
inelastic demand
slight increases or decreases in price will not significantly affect the demand or units sold for the product
total cost
total expenses incurred by a firm in producing and marketing a product; total cost is the sum of fixed and variable costs
unit variable
break-even analysis
examines the relationship between total revenue and total cost to determine profit-ability at different levels of output
FC/(unit price-unit vc)
common pricing objectives
profit, sales, market share, unit volume, survival, social responsibility
pricing constraints
factors that limit the range of price a firm may set
common pricing constraints
demand for the product class, product, and brand, newness of the product: stage in the product life cycle, cost of producing and marketing the product, competitors' prices
horizontal price fixing
when two or more competitors collude to explicitly or implicitly set prices
vertical price fixing
controlling agreements between independent buyers and sellers (a manufacturer and a retailer) whereby sellers are required to not sell products below a minimum retail price
price discrimination
the practice of charging different prices to different buyers for goods of like grade and quality
deceptive pricing
price deals that mislead consumers. ex. bait and swtich - a firm offers a very low price on a product (bait) to attract to a store, then the customer is persuaded to purchase a higher priced item (the switch) using a variety of tricks, including degrading the promoted item and not having the promised item in stock or refusing to take orders for it
predatory pricing
charging a very low price for a product with the intent of driving competitors out of business
steps in setting final price
select an approximate price level, set the list or quoted price, make special adjustments to the list or quoted price
one-price policy
(fixed pricing) setting one price for all buyers of a product or service
flexible-price policy
involves setting different prices for products and services depending on individual buyers and purchase situation in light of demand, cost, and competitive factors
quantity discounts
reductions in unit costs for a larger order, in order to encourage customers to buy larger quantities
seasonal discounts
used to encourage buyers to stock inventory earlier than their normal demand would require. helps more efficient production by smoothing out seasonal manufacturing peaks and troughs
trade (functional) discounts
discounts to reward wholesalers and retailers for marketing functions they will perform in the future
cash discounts
used to encourage retailers to pay their bills quickly
trade-in allowances
price reduction given when a used product is part of the payment on a new product
promotional allowences
sellers in the channel of distribution can qualify for this discount for undertaking certain advertising or selling activities to promote a product
FOB origin pricing
"free on board" some vehicle at some location, which means the seller pays the cost of loading and product onto the vehicle that is used (such as a barge, railroad car, or truck).
Uniform delivered pricing
the price the seller quotes includes all the transportation costs