MKT 301 – Chapter 19 – Flashcards
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purpose of marketing
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to facilitate satisfying exchange relationships between buyer and seller
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price
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the value paid for a product in a marketing exchange
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price (contd.)
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key element in the marketing mix because it relates directly to the generation of total revenue has a psychological/imagery impact on customers, so marketers can use is symbolically pricing high - emphasizes quality pricing low - emphasizes a bargain/lower quality
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barter
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the trading of products
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profit
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= total revenue - total costs = (price x quantity sold) - total costs
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factors affecting pricing decisions
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organizational and marketing objectives pricing objectives costs other marketing mix variables channel member expectations customer interpretation and response competition legal and regulatory issues
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price competition
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emphasizing price as an issue and matching or beating competitors' prices
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nonprice competition
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emphasizing factors other than price to distinguish a product from competing brands
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demand curve
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a graph of the quantity of products expected to be sold at various prices if other factors remain constant
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demand
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depends on other factors in the marketing mix including quality, promotion and distribution an improvement in any of these factors may cause a shift to demand curve D2
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prestige products
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tend to sell better at high prices because the expense makes the buyers feel elite (i.e. beauty products)
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factors the can influence demand
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changes in buyers' needs variations in the effectiveness of other marketing mix variables the presence of substitutes dynamic environment
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price elasticity of demand
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a measure of the sensitivity of demand to changes in price = % change in quantity demanded / % change in price
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elastic demand
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a change in price causes an opposite change in total revenue inverse relationship
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inelastic demand
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total revenue and price change in the same direction direct relationship
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fixed costs
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costs that do not vary with changes in the number of units produced or sold
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average fixed cost
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the fixed cost per unit produced
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variable costs
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costs that vary directly with changes in the number of units produced or sold
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average variable cost
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variable cost per unit produced
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total cost
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sum of average fixed and average variable costs times the quantity produced
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average total cost
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sum of average fixed cost and the average variable cost
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2 approaches to understanding demand, cost, and profit relationships
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marginal analysis break-even analysis
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marginal cost (MC)
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extra cost incurred by producing one more unit of a product
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Marginal revenue (MR)
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change in total revenue resulting from the sale of an additional unit of a product
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break even point
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the point at which the costs of producing a product equal the revenue made from selling the product =fixed costs/per-unit contribution to fixed costs =fixed costs/price-variable costs
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internal reference price
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price developed in the buyers mind through experience with the product
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external reference price
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a comparison price provided by others
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value-conscious
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concerned about price and quality of a product
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price-conscious
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striving to pay low prices
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prestige-sensitive
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drawn to products that signify prominence and status
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price discrimination
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employing price differentials that injure competition by giving one or more buyers a competitive advantage
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issues unique to pricing business products
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discounts geographic pricing transfer pricing
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trade (functional) discount
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reduction off the list price a producer gives to an intermediary for performing certain functions, such as selling, transporting, storing (warehousing), final processing, and perhaps providing credit services
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quantity discounts
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deductions from th list price for purchasing in large quantities
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cumulative discounts
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quantity discounts aggregated over a stated time period (encourages customer loyalty)
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noncumulative discounts
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onetime price reductions based on number of units purchased, the dollar value of the order, or the product mix purchased
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cash discount
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price reduction given to buyers for prompt payment or cash payment reduces expenses associated with accounts receivable and collection
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seasonal discount
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price reduction given to buyers for purchasing goods or services out of season
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allowance
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a concession in price to achieve a desired goal
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geographic pricing
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reduction for transportation and other costs related to the physical distance between buyer and seller
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F.O.B.
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free-on-board
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F.O.B. factory
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price of merchandise at the factory before shipment excludes transportation costs
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F.O.B. destination
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price indicating the producer is absorbing shipping costs may be used to attract distant customers
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uniform geographic pricing (aka postage-stamp pricing)
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charging all customers the same price, regardless of geographic location price is based on average shipping costs for all customers
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zone pricing
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pricing based on transportation costs within major geographic zones as the transportation costs across zones increase, so do the prices
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base-point pricing
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geographic pricing that combines factory price and freight charges from the base point nearest the buyer this approach to pricing has virtually been abandoned because of its questionable legal status
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freight absorption pricing
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absorption of all or part of actual freight costs by the seller
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transfer pricing
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prices charged in sales between an organization's units when one unit in an organization sells a product to another unit
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Actual full cost
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calculated by dividing all fixed and variable expenses for a period into the number of units produced
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Standard full cost
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calculated based on what it would cost to produce the goods at full plant capacity
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Cost plus investment
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calculated as full cost plus, the cost of a portion of the selling unit's assets used for internal needs
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Market-based cost
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calculated at the market price less a small discount to reflect the lack of sales effort and other expenses
