BA370 Olson SDSU Exam 3/ Final

price

the overall sacrifice a consumer is willing to make to acquire a specific product or service; the most challenging of the 4 P's to manage b/c it's least understood; does NOT generate cost, but generates revenue

break-even analysis

technique that enables managers to examine the relationships among cost, price, revenue, and profit (assesses fixed costs, total costs, total revenue)

break-even point

point at which the number of units sold generates just enough revenue to equal the total costs

competitor orientation

when firms strategize according to the premise that they should measure themselves against their competition

competitive parity

firms set prices that are similar to their leading competitiors; maturity stage

status quo pricing

changes prices only to meet those of the competition

value

the relationship between a product's benefits and the consumer's costs

elasticity of demand

% change in quantity demanded / % change in price

demand curve

shows how many units of a product or service consumers will demand during a specific period of time at different prices

cross-price elasticity

the % change in the quantity of product A demanded compared with the % change in price of product B

complementary products

products whose demands are positively correlated

substitute products

products whose demand are negatively correlated

profit orientation

firms implement this when their company objective is making a profit

target profit pricing

when firms have a specific profit goal as their overriding concern

maximizing profits

strategy implemented when mathematical model can be applied to set the price at which profits are maximized

target return pricing

when firms are interested in the rate at which their profits are generated relative to their investments (usually expressed in % of sales)

sales orientation

these firms believe that increasing sales will help the firm more than will increasing profits

premium pricing

the firm deliberately prices a product above the prices set for competing products to capture those customers who always shop for the best or for whom price doesn't matter

customer orientation

when a firm sets its pricing strategy based on how it can ass value to its products or services

5 c's of pricing

customers, costs, competition, channel members, company objectives

channel members

manufacturers, wholesalers, retailers; each adds value

monopolistic competition

when there are many firms competing for customers in a given market but their products are different

monopoly

when one firm provides the product or service in a particular industry

oligopolistic competition

when only a few firms dominate

the substitution effect

refers to consumers' ability to substitute other products for the focal brand

pure competition

when a large # of sellers offer standardized products or commodities that consumers perceive as substitutable

fixed costs

the costs that remain essentially the same (rent, utilities, insurance, salaries)

total cost

variable costs + fixed costs

income effect

refers to the change in the quantity of a product demanded by consumers due to a change in their income

prestige products

when consumers purchase for their status rather than their functionality

contribution per unit

price - the variable cost per unit

gray market

employs irregular methods

total revenue

price x quantity

total variable costs

variable cost per unit x quantity

predatory pricing

when a firm sets a very low price for one or more of its products with the intent to drive its competition out of business; outlawed by the Sherman Act and Federal Trade Commission Act

price war

when two or more firms compete primarily by lowering their prices to conserve their market share; end of summer price war between Pepsi and Coke on 2L bottles

pricing strategy

long-term approach to setting prices broadly in an integrative effort based on the 5 C's; cost-based, competition-based, value-based

lease

consumers pay a fee to purchase the right to use a product for a specific amount of time; never owns the product, just rents it

rebates

when the manufacturer issues a refund as a portion of the purchase price returned to the buyer in the form of cash

price bundling

selling more than one product for a single, lower price

seasonal discount

an additional reduction offered as an incentive to retailers to order merchandise in advance of the nomral buying season

cash discounts

reduces the invoice cost if the buyer pays the invoice prior to the end of the the discount period; benefits from time value of money

price lining

when marketers establish a price floor and a price ceiling for an entire line of similar products and then set a few other price points in between to represent distinct difference in quality; if highest quality product in the line is way more expensive, firms might raise prices of entire line and lower price of most expensive product to equalize

advertising allowance

offers a price reduction to channel members if they agree to feature the manufacturer's product in their advertising and promotional efforts

slotting allowance

fees paid to retailers to get new products into stores or to gain more/better shelf space

quantity discount

provides a reduced price according to the amount purchased

cumulative quantity discount

uses the amount purchased over a specified time period and usually involves several transactions

noncumulative quantity discount

is based only on the amount purchased in a single; gives the buyer with an incentive to purchase more merchandise immediately

uniform delivered pricing

when the shipper charges one rate, no matter where the buyer is located

zone pricing

sets different prices depending on the geographical division of the delivery area

high/low pricing

relies on the promotion of sales, during which prices are temporarily reduced to encourage purchases; targets 2 segments (price sensitive and price insensitive)

reference price

the price against which buyers compare the actual selling price of the product and that facilitates their evaluation process

market penetration strategy

sets the initial price low for the introduction of the new product; this means lower per-unit price which leads to higher sales; discourages competitors from entering market b/c would have to produce large amount of product in short time b/c of such low prices

experience curve effect

the unit cost is expect to drop significantly as the accumulated volume sold increases

leader pricing

attempts to build store traffic by aggressively pricing and advertising a regularly purchased item, often priced at or just above the store cost

pricing tactics

short-term methods to focus on select components of the 5 C's

markdowns

the reductions retailed take on the inital selling price of the product

size discount

most common quantity discount; the larger the quantity, the less cost per ounce

coupon

offer a discount on the price of specific items when they are purchased

cost of ownership method

consumers may be willing to pay more for a particular product because over an entire lifetime it will eventually cost less to own than a cheaper alternative

value-based pricing methods

includes approached to setting prices that focus on the overall value of the product offering as perceived by the consumer

bertering

the ultimate value based method b/c consumer determines price; common with services and B2B

improvement value

an estimate of how much more or less consumers are willing to pay for a product relative to other comparable products

everyday low pricing (EDLP)

when companies stress the continuity of their retail prices at a level somewhere between the regular, non sale price and the deep-discount sale prices their competitors may offer; value to customers by reducing cost and decision making time

price skimming

appeals to consumers who are willing to pay higher prices to obtain new products/ premium price to have the innovation first; also because firm doesn't have means to make mass production right away so they hike up the price to slow down sales a bit; also used for infrequent purchases

bait-and-switch

a store lures customers in with a very low price on an item, only to aggressively pressure these customers into purchasing a higher-priced model by disparaging the lower priced item

price fixing

the practice of colluding with other firms to control prices

horizontal price fixing (illegal)

when competitors that produce and sell competing products or services collude to control prices effectively taking price out of the decision for customers; illegal under the Sherman Antitrust Act

vertical price fixing (gray area)

when parties at different levels of the same marketing channel agree to control the prices pressed on to customers

manufacturer's suggest retail price (MSRP)

manufacturer's encourage retailers to sell their merchandise as a specific price

price discrimination

when firms sell the same product to different resellers at different prices; some are illegal according to the Clayton Act and Robinson-Patman Act

loss leader pricing

NOT illegal; lowers the price below the store's cost; example: free turkey if you spend $75

marketing channel management/ supply chain management

firms employ to efficiently integrate their suppliers, manufacturer's, warehouses, stores, and transportation; to ensure the right quantities, locations, time and minimize costs

wholesalers

firms that buy products from manufacturer's and resell them to retailers; retailers sell directly to consumers

viral marketing program

encourages people to pass along a marketing message to other potential consumers

best supply chain

follows direct route from manufacturer to consumer

distribution center

facility for the receipt, storage, and redistribution of goods to company stores

fulfillment center

used to ship directly to customers

direct marketing channel

manufacturer --> customer; no intermediaries

indirect channel

one or more intermediaries work with manufacturers to provides goods

one intermediary

manufacturer --> retailer --> customer

two intermediaries

manufacturer --> wholesaler --> retailer --> customer

vertical channel conflict

when supply chain members that buy and sell to one another are not in agreement about their goals, roles, or rewwards

horizontal channel conflict

when there is disagreement or discord among members at the same level in a marketing channel (retailer vs. retailer)

independent/conventional marketing channel

several independent members attempt to satisfy their own behaviors

vertical marketing system

a marketing channel in which the members act as a unified systm

administered vertical marketing system

no common ownership or contractual relationships, but the dominant channel member controls or holds the balance of power

power

when one firm has the means or ability to dictate the actions of another member at a different level of distribution

reward power

when a firm offers rewards/monetary incentive

coercive power

when firm threatens to punish other channel member for not undertaking certain tasks (late payment, late delivery)

information power

when one channel member has more info than another

legitimate power

when a firm makes a channel member behave in a certain way because of a contractual agreement between two firms

contractual vertical marketing systems

independent firms at different levels of the marketing channel join through contracts to obtain economies of scale and coordination and to reduce conflict

franchising

contractual agreement between franchisor and franchisee that allows the franchisee to operate a retail outlet using a name and format developed by the franchisor

franchisor

headquarters

franchisee

individual store owner

corporate vertical marketing system

the parent company has complete control and can dictate the priorities and objectives of the marketing channel because it owns multiple segments of the channel

strategic/partnering relationship

in which the marketing channel members are committed to maintaining the relationship over the long term and investing in opportunities that are mutually beneficial; successful when both parties make credible commitments or investments

flow 1

customer to store; sales associate scans the UPC code for product the customer is purchasing

universal product code (UPC)

the black and white bar code found on most merch.