chapters 13 + 14 - pricing

price

the money or other considerations exchanged for the ownership or use of a product or service

barter

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

value

the ratio of perceived benefits to price

value pricing

the practice of simultaneously increasing product and service benefits while maintainig or decreasing price

identify pricing objectives

step 1 of setting price; figuring out the role of price in an organization’s marketing and strategic plans

managing for long-run profits

an objective in which companies give up immediate profit by developing qulity products to penetrate competitive markets over the long term

maximizing current profit

an objective in which targets are set and performance is measured quickly over each quarter or each year

target return

an objective in which a firm sets a profit goal, usually determined by its board of directors

increase sales revenue

objectives in which a firm’s profit is already high enough for it to remain in business, and now the goal is to make as much as possible off sales

market share

ratio of a firm’s sales revenues or unit sales to those of the idustry

unit volume

an objective in which firms sell multiple products at very different prices and need to match customer demand with price and productin capacity

pricing constraints

factors that limit the range of prices a firm may set: demand, newness, costs, exclusivity, competition, ethics/legality

demand curve

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

taste, substitutes, income

three factors that influence demand for a product

price elasticity of demand

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

elastic demand

when a 1 percent decrease in price produces more than a 1 percent increase in quantity demanded, thereby increasing total revenue

inelastic demand

when a 1 percent decrease in price produces less than a 1 percent increase in quantity demanded, thereby decreasing total revenue

total cost

total expense incurred by a firm in producing and marketing a product

fixed cost

the sum of expenses of the firm that are stable and do not change with the quantity of a product that is produced and sold

variable cost

the sum of the expenses of the firm that vary directly with the quantity of a product that is produced and sold

unit variable cost

variable cost expressed on a per unit basis

contribution margin

difference between unit selling price and unit variable cost divided by price, expressed as a percent

break even analysis

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

break even point

quantity at which total revenue and total cost are equal: fixed cost divided by unit price - UVC

break-even chart

a graphic presentation that shows that total revenue and total cost intersect and are equal at a certain quantity