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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

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