Marketing Fundamentals Quiz Ch. 10

Carmex

Each store sells the same item at a different price

Vizio TV

• Not Brick and Mortar - no store location

  • Sold at Costco, Walmart, Best Buy, Target

• Strategy: Affordable products with innovative features

• Relies on contract manufacturers to build products

• Delivers high-quality technology at a great value to consumers

Price equation

Final price = list price - (incentives+allowances) + extra fees

e.g. Tuition = published tuition - scholarship + room fees

Price definition

The money or other considerations (including other products and services) exchanged for the ownership or use of a product or service

• what the consumer pays

Barter definition

The practice of exchanging products and services for other products and services rather than for money

Value definition

The ratio of perceived benefits to price, or Value = (perceived benefits divided by price)

Dice: if we adjust one thing, it adjusts everything: value, price, benefit

Value pricing definition

The practice of simultaneously increasing product and service benefits while maintaining or decreasing pricing 

Profit equation

Profit = total revenue - total cost; Profit = (unit price x quantity sold) - (fixed + variable cost)

Airline: Spirit fares

• 40% lower than competitors

• Customers pay extra for boarding pass, beverages, overhead bin, and more

Value pricing?

• Yes, to get to destination cheaply

• No, for those who expect more benefits 

Value: Pizza

• Large pizza, your wallet on the line, perceived benefit

Selecting an approximate price level

• Demand-oriented approaches

• Cost-oriented approaches

• Profit-oriented approaches

• Competition-oriented approaches

Demand-oriented approaches

• Skimming

• Penetration

• Prestige

• Odd-even

• Bundle

Cost-oriented approaches

• Standard markup

• Cost-plus

Profit-oriented approaches

• Target profit

• Target return on sales

• Target return on investment

Competition-oriented approaches

• Customary

• Above, at, or below market

• Loss leader

Skimming pricing

Involves setting the highest initial price that customers really desiring the product are willing to pay when introducing a new or innovative product

Penetration pricing

Involves setting a low initial price on a new product to appeal immediately to the mass market

• Introducing something to the market

• Underpricing

Prestige pricing

Involves setting a high price so that quality- to status- conscious consumers will be attracted to the product and buy it

• Cost is so high, but the status it gives makes it okay

Odd-even pricing

Involves setting prices a few dollars or cents under an even number

• Most prices are at an odd total number

Bundle pricing

Involves the marketing of two or more products in a single package price

• You need a yellow highlighter, but you can only buy a pack with a pink and an orange, so now you have three colors 

Standard markup pricing

Involves adding a fixed percentage to the cost of all items in a specific product class

• Cost

• Selling price

Cost-plus pricing

Involves summing the total unit cost of providing a product or service and adding a specific amount to the cost to arrive at a price

• Cost-plus percentage-of-cost pricing

• Cost-plus fixed-fee pricing

Customary pricing

Involves setting a price that is dictated by tradition, a standardized channel of distribution, or other competitive factors

Above-, At-, or Below-Market Pricing

Involves setting a market price for a product or product class based on a subjective feel for the competitors’ price or market price as the benchmark

Loss-leader pricing

Involves deliberately selling a product below its customary price, not to increase sales, but to attract customers’ attention in hopes that they will buy other products will large markups as well

Price Premium %

[Dollar Sales ($) Market Share for a Brand / Unit Volume (#) Market Share for a Brand] - 1

Demand factors

• Consumer tastes

• Price and availability of similar products

• Consumer income

Demand curve definition

A graph that relates the quantity sold and price, showing the maximum number of units that will be sold at a given price

Price elasticity of demand

• The percentage change in quantity demanded relative to a percentage change in price

• The market’s reaction to a change in price

• >1, <1

• Negative numbers do not matter

BMW Skateboard

People wanted to go down the hill faster with a skateboard

Movement along a demand curve

Price is lowered, quantity sold increases

Shift in the demand curve

Demand increases, quantity sold increases

Price elasticity of demand equation

(Percentage change in quantity demanded)/(Percentage change in price)

Break-even equation

FC/(P-UVC)

Pricing objectives definition

Specify the role of price in an organization’s marketing and strategic plans

• Profit: ROI - Return on investment

  • If an investor gives you 10,000, they are expecting something in return

Break-even analysis

A technique that analyzes the relationship between total revenue and total cost to determine profitability at various levels of output

Pricing constraint

Factors that limit the range of prices a firm may set

Pricing constraints

• Demand for the product class (cars), product group (sports cars), and brand (Bugatti)

• Newness of the product: Stage in the product life cycle

• Newer products are usually priced higher

• Cost of producing and marketing the product

• Competitors’ prices

• Legal and ethical considerations:

  • Price fixing

  • Price discrimination

  • Deceptive pricing

  • Predatory pricing

Price Discrimination

Illegal under the Clayton Act, strengthen by the Robinson Patton Act

Step 3: Setting Final Price

Make special adjustments to the list or quoted price

• Discounts - reductions from list price favorable to seller

  • Quantity discounts

  • Seasonal discounts

  • Trade (functional) discounts

  • Cash discounts 

Uber and Lyft provide on-demand transportation and use “Surge” or “prime-time” pricing during peak demand times

• Fares increase in period of high demand

• Demand curve shifts to the right

• Critics argue that this is price gouging