Chapters 13 & 14 – Flashcards
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(from marketing viewpoint) is the money or other considerations (including other products and services) exchanged for the ownership or use of a product or service
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Price
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the practice of exchanging products or services for other products or services rather than for money
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Barter
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is the ratio of perceived benefits to price (value=perceived benefits/price)
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Value
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(what creative marketers engage in) the practice of simultaneously increasing product and service benefits while maintaining or decreasing price "Higher the price, higher the quality" mentality
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Value-Pricing
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Profit = Total revenue − Total cost; OR Profit = (Unit price × Quantity sold) − (Fixed cost + Variable cost).
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Profit equation
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involve specifying the role of price in an organization's marketing and strategic plans; can be be carried down to lower levels of the organization as well as include the company as a whole
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Pricing objectives
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factors that limit the range of prices a firm may set
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Pricing constraints
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is a graph relating the quantity sold and price, which shows the maximum number of units that will be sold at a give price price per unit on y axis & units sold goes on x axis
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Demand Curve
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factors that determine consumers' willingness and ability to pay for products and services; often very difficult to estimate demand for new products
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Demand Factors
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is the total money received from the sale of a product TR = Total revenue P = Unit price of the product Q = Quantity of the product sold TR = P x Q
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Total Revenue (TR)
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is the average amount of money received for selling one unit of a product, or simply the price of that unit. AR is the total revenue divided by the quantity sold: AR = TR/Q = P
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Average Revenue (AR)
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is the change in total revenue that results from producing and marketing one additional unit of a product: MR = Change in TR/1 unit increase in Q = Slope of the TR curve NOTE: for any downward-sloping, straight-line demand curve, the MR curve ALWAYS falls 2x as fast as the demand curve
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Marginal Revenue (MR)
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Measures the responsiveness of demand following a change in price; or the percentage change in quantity demanded relative to a percentage price change in price: E = Percent change in quantity demanded/Percent change in price
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Price Elasticity of Demand (E)
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is the total expense incurred by a firm in producing and marketing a product. TC is the sum of the fixed cost and variable cost: TC = FC + VC
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Total Cost (TC)
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is the sum of the expenses of the firm that are stable and do not change with the quantity of a product that is being produced and sold Ex: rent on a building, executive salaries, and insurance
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Fixed Cost (FC)
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is the sum of the expenses of the firm that vary directly with the quantity of a product that is produced and sold. For example, as the quantity sold doubles, the variable cost doubles. Ex: direct labor and direct materials used in producing the product and the sales commissions that are tied directly to the quantity sold
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Variable Cost (VC)
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is the variable cost expressed on a per unit basis for a product: UVC = VC/Q
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Unit Variable Cost (UVC)
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is the change in total cost that results from producing and marketing one additional unit of a product: MC = Change in TC/1 unit increase in Q = Change in TC/ Change in Q = slop of TC curve
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Managerial Cost (MC)
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is a continuing, concise trade-off of incremental costs against incremental revenues; in personal terms it means that people will continue to do something as long as the incremental return exceeds the incremental cost (holds true for marketing and pricing decisions)
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Marginal Analysis
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is a technique that analyzes the relationship between total revenue and total cost to determine profitability at various levels of output
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Break-Even Analysis
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is the quantity at which total revenue and total cost are equal. Profit then comes form all units sold BEYOND the BEP: BEP quantity = Fixed Cost/Unit Price - Unit Variable Cost = FC/P - UVC
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Break-Even Point (BEP)
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Shows a graphic presentation of the break-even analysis; shows that the total revenue and total cost intersect and are equal at a certain quantity
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Break-Even Chart
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used when a firm introduces a new or innovative product by setting the highest initial price the customers really desiring the product are willing to pay; these customers are NOT very price sensitive because they weight the new product's price, quality, and ability to satisfy their needs against the same characteristics of substitutes; price gradually lowers overtime thus skimming the successive layers of "cream", or customer segments
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Skimming Pricing
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Setting a low initial price on a new product to appeal immediately to the mass market, aka the exact opposite of skimming pricing
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Penetration Pricing
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involves setting a high price so the quality- or status-conscious consumers will be attracted to the product and buy it (see pg. 346 for Demand Curve)
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Prestige Pricing
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Often a firm that is selling not just a single product but a line of products may price them at a number of different specific pricing points (see pg. 346 for Demand Curve)
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Price Lining
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involves setting prices a few dollars or cents under an even dumber Ex: selling something for $499.99 instead of $500
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Odd-Even Pricing
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results in the manufacturer deliberately adjusting the composition and features of a product to achieve the target price to consumers Ex: Canon uses this practice for pricing its cameras
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Target Pricing
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is a frequently used demand-oriented pricing practice that occurs when a firm markets two or more products in a single package Ex: airlines including vaca packages that include airfare, car rental, and lodging; fast food extra value menu
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Bundle Pricing
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the charging of different prices to maximize the revenue for a set amount of capacity at any given time ex: when airline flights are priced differently within the coach class
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Yield management pricing
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entails adding a fixed percentage to the cost of all items in a specific product class; this depends on the type of retail store (furniture, clothing, or grocery) and on the product involved
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Standard markup pricing
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involves summing the total unit cost of providing a product or service and adding a specific amount of the cost to arrive at a price; generally assumes two forms: 1. cost-plus percentage-of-cost pricing: a fixed percentage is added to the total unit cost 2. cost-plus fixed-fee pricing: a supplier is reimbursed for all costs, regardless of what they turn out to be, but is allowed only a fixed fee as a profit that is independent of the final cost of the project
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Cost-plus pricing
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based on the learned effect, which holds that the unit cost of many products and services declines by 10% to 30% each time a firm's experience at producing and selling them doubles; this reducting is regular or predictable enough that the average cost per unit can be mathematically estimated
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Experience Curve Pricing
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when a firm sets an annual target of a specific dollar volume of profit: Profit = Total Revenue - Total Cost (see pg. 349-350)
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Target profit pricing
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(often used by supermarket chains) this is used to set typical prices that will give the firm a profit that is a specified percentage, say 1%, on the sales volume: Target return on sales = Target Profit/Target Revenue (see pg. 350)
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Target return-on-sales pricing
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is a method of setting prices to achieve a specified target (usually used by publicly owed corporations, for ex, that want to get an ROI of 20%)
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Target return-on-investment pricing
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is used for some products where tradition, a standardized channel of distribution, or other competitive factors dictate the price Ex: pricing of Swatch watches
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Customary pricing
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used when hard to identify a specific market price for a product or product class, but marketing managers often have a subjective feel for the competitors price or market price and using this benchmark, they may deliberately choose this pricing strategy
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Above-, At-, or Below-Market Pricing
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purpose of this is not to increase sales but to attract consumers in hopes they will buy other products as well, particularly the discretionary items with large markups Ex: special promotion at a retail stores, they deliberately sell a product BELOW its customary price to attract attention to it
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Loss-leader pricing
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is setting one price for all buyers of a product or service; no variation in price whatsoever
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One-Price Policy (Fixed Pricing)
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In contrast to One-Price Policy (Fixed Pricing), this involves setting different prices for products and services depending on individual buyers and purchase situations
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Flexible-Price Policy (Dynamic Pricing)
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the setting of prices for all items in a product line (the manager's challenge when marketing multiple products)
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Product-Line Pricing
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involves successive price cutting by competitors to increase or maintain their unit sales or market share; erupts in a vast variety of industries
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Price War
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reductions in unit costs for a larger order and is meant to encourage customers to buy larger quantities of a product
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Quantity Discounts
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sellers in the marketing channel can qualify for these allowances for undertaking certain advertising or selling activities to promote a product
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Promotional Allowances
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is the practice of replacing promotional allowances with lower manufacturer list prices; EDLP promises to reduced the average price to consumers while minimizing promotional allowances that cost manufacturers billions of dollars every year
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Everyday low pricing (EDLP)
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usually involves the seller's naming the location of this loading as the seller's factory or warehouse (ex: "FOB Detroit" or FOB factory").
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FOB ("free on board") Origin Pricing
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when this method is used, the price the seller quotes includes all transportation costs
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Uniform delivered pricing
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involves selecting one or more geographical locations (basing point) from which the list price for products plus friend expenses are charged to the buyer Ex: used in steel, cement, and lumber industries where freight expenses are a significant part of the total cost o the buyer and the products are largely undifferentiated
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Basing-Point Pricing
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a conspiracy among firms to set prices for a product; this is illegal per say under the Sherman Act see pg. 361-362 for more detail
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Pricing Fixed
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The Clayton Act as amended by the Robinson-Patman Act prohibits this: the practice of charging different prices to different buyers for goods like grade and quality
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Price Discrimination
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is the practice of charging a very low price for a product with the intent of driving competitors out of business and once the competitors have been driven out, the firm raises its prices; this is illegal under the Sherman Act ad the Federal Trade Commission Act
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Predatory Pricing
