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All the money received from the sale of a product, or price multiplied by quantity sold
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
(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
(demand-oriented approach), setting a high price so that quality- or status-conscious consumers will be attracted to the product and buy it
(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.
(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
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-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
(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
a slight decrease in price results in a relatively large increase in demand, or units sold
slight increases or decreases in price will not significantly affect the demand or units sold for the product
total expenses incurred by a firm in producing and marketing a product; total cost is the sum of fixed and variable costs
examines the relationship between total revenue and total cost to determine profit-ability at different levels of output
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
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
the practice of charging different prices to different buyers for goods of like grade and quality
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
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
involves setting different prices for products and services depending on individual buyers and purchase situation in light of demand, cost, and competitive factors
reductions in unit costs for a larger order, in order to encourage customers to buy larger quantities
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
price reduction given when a used product is part of the payment on a new product
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).
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