UCF MAR 3023 Exam 4 Review (Ch. 14-17)

What is the definition of *price*?

The overall sacrifice a consumer is willing to make—money, time, energy—to acquire a specific product or service.

What are the 5 C's of Pricing?

Competition, Costs, Company Objectives, Customers, Channel Members

What is *Profit-Orientation*?

A company objective that can be implemented by focusing on target profit pricing, maximizing profits, or target return pricing.

What is *Target Profit Pricing*?

A pricing strategy implemented by firms when they have a particular profit goal as their overriding concern; uses price to stimulate a certain level of sales at a certain profit per unit.

What is *Maximizing Profits*?

A profit strategy that relies primarily on economic theory. If a firm can accurately specify a mathematical model that captures all the factors required to explain and predict sales and profits, it should be able to identify the price at which its profits are maximized.

What is *Target Return Pricing*?

A pricing strategy implemented by firms less concerned with the absolute level of profits and more interested in the rate at which their profits are generated relative to their investments; designed to produce a specific return on investment, usually expressed as a percentage of sales.

What is *Sales Orientation*?

A company objective based on the belief that increasing sales will help the firm more than will increasing profits.

What is *Premium Pricing*?

A competitor-based pricing method by which the firm deliberately prices a product above the prices set for competing products to capture those consumers who always shop for the best or for whom price does not matter.

What is *Competitor Orientation*?

A company objective based on the premise that the firm should measure itself primarily against its competition.

What is *Competitive Parity*?

A firm's strategy of setting prices that are similar to those of major competitors.

What is *Status Quo Pricing*?

A competitor-oriented strategy in which a firm changes prices only to meet those of competition.

What is *Customer Orientation*?

A company objective based on the premise that the firm should measure itself primarily according to whether it meets its customers' needs.

What is the *Demand Curve*?

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

What is the *Price Elasticity of Demand*?

Measures how changes in a price affect the quantity of the product demanded; specifically, the ratio of the percentage change in quantity demanded to the percentage change in price.

What is Price *Elastic*?

Refers to a market for a product or service that is price sensitive; that is, relatively small changes in price will generate fairly large changes in the quantity demanded.

What is Price *Inelastic*?

Refers to a market for a product or service that is price insensitive; that is, relatively small changes in price will not generate large changes in the quantity demanded.

What is *Dynamic Pricing*?

Refers to the process of charging different prices for goods or services based on the type of customer, time of the day, week, or even season, and level of demand.

What is *Income Effect*?

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

What is the *Substitution Effect*?

Refers to consumers' ability to substitute other products for the focal brand, thus increasing the price elasticity of demand for the focal brand.

What is *Cross-Price Elasticity*?

The percentage change in demand for product A that occurs in response to a percentage change in price of product B; see also

What are *Complementary Products*?

Products whose demand curves are positively related, such that they rise or fall together; a percentage increase in demand for one results in a percentage increase in demand for the other.

What are *Substitute Products*?

Products for which changes in demand are negatively related; that is, a percentage increase in the quantity demanded for product A results in a percentage decrease in the quantity demanded for product B.

How do you calculate *Break Even Point*?

FC / CM per unit

What is *Oligopolistic Competition*?

Occurs when only a few firms dominate a market.

What is *Monopolistic Competition*?

Occurs when there are many firms that sell closely related but not homogeneous products; these products may be viewed as substitutes but are not perfect substitutes.

What is *Pure Competition*?

Occurs when different companies sell commodity products that consumers perceive as substitutable; price usually is set according to the laws of supply and demand.

Cost-based Pricing Methods

An approach that determines the final price to charge by starting with the cost, without recognizing the role that consumers or competitors' prices play in the marketplace.

Competition- based Pricing Methods

An approach that attempts to reflect how the firm wants consumers to interpret its products relative to the competitors' offerings; for example, setting a price close to a competitor's price signals to consumers that the product is similar, whereas setting the price much higher signals greater features, better quality, or some other valued benefit.

Value-based Pricing Methods

An approach that focuses on the overall value of the product offering as perceived by consumers, who determine value by comparing the benefits they expect the product to deliver with the sacrifice they will need to make to acquire the product.

Everyday low pricing

A strategy companies use to emphasize the continuity of their retail prices at a level somewhere between the regular, nonsale price and the deep-discount sale prices their competitors may offer

High Low Pricing

A pricing strategy that relies on the promotion of sales, during which prices are temporarily reduced to encourage purchases.

Price Skimming

A strategy of selling a new product or service at a high price that innovators and early adopters are willing to pay in order to obtain it; after the high-price market segment becomes saturated and sales begin to slow down, the firm generally lowers the price to capture (or skim) the next most price sensitive segment.

Market Penetration Strategy

A growth strategy that employs the existing marketing mix and focuses the firm's efforts on existing customers.

Markdowns

Reductions retialers take on the initial selling price of the product or service

Size discount

The most common implementation of a quantity discount at the consumer level; the larger the quantity bought, the less the cost per unit (e.g., per ounce).

Seasonal Discounts

Seasonal discounts are price reductions offered on products and services to stimulate demand during off-peak seasons

Coupon

Provides a stated discount to consumers on the final selling price of a specific item; the retailer handles the discount.

Rebates

A consumer discount in which a portion of the purchase price is returned to the buyer in cash; the manufacturer, not the retailer, issues the refund.

Lease

A written agreement under which the owner of an item or property allows its use for a specified period of time in exchange for a fee.

Price Bundling

Consumer pricing tactic of selling more than one product for a single, lower price than what the items would cost sold separately; can be used to sell slow-moving items, to encourage customers to stock up so they won't purchase competing brands, to encourage trial of a new product, or to provide an incentive to purchase a less desirable product or service to obtain a more desirable one in the same bundle.

Leader Pricing

Consumer pricing tactic that attempts to build store traffic by aggressively pricing and advertising a regularly purchased item, often priced at or just above the store's cost.

Price Lining

Consumer market pricing tactic of establishing a price floor and a price ceiling for an entire line of similar products and then setting a few other price points in between to represent distinct differences in quality.

Seasonal Discount

Pricing tactic of offering an additional reduction as an incentive to retailers to order merchandise in advance of the normal buying season.

Cash Discount

Tactic of offering a reduction in the invoice cost if the buyer pays the invoice prior to the end of the discount period.

Advertising Allowance

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

Slotting Allowance

Fees firms pay to retailers simply to get new products into stores or to gain more or better shelf space for their products.

Quantity Discount

Pricing tactic of offering a reduced price according to the amount purchased; the more the buyer purchases, the higher the discount and, of course, the greater the value.

Zone Pricing

The shipper sets different prices depending on a geographic division of the delivery areas.

Loss Leader Pricing

Loss leader pricing takes the tactic of leader pricing one step further by lowering the price below the store's cost.

Bait-and-Switch

A deceptive practice of luring customers into the store with a very low advertised price on an item (the bait), only to aggressively pressure them into purchasing a higher-priced model (the switch) by disparaging the low-priced item, comparing it unfavorably with the higher-priced model, or professing an inadequate supply of the lower-priced item.

Predatory Pricing

A firm's practice of setting a very low price for one or more of its products with the intent to drive its competition out of business; illegal under both the Sherman Antitrust Act and the Federal Trade Commission Act.

Price Discrimination

The practice of selling the same product to different resellers (wholesalers, distributors, or retailers) or to the ultimate consumer at different prices; some, but not all, forms of price discrimination are illegal.

Price Fixing

The practice of colluding with other firms to control prices.

Horizontal Price Fixing

Occurs when competitors that produce and sell competing products collude, or work together, to control prices, effectively taking price out of the decision process for consumers.

Vertical Price Fixing

Occurs when parties at different levels of the same marketing channel (e.g., manufacturers and retailers) collude to control the prices passed on to consumers.

Wholesalers

Those firms engaged in buying, taking title to, often storing, and physically handling goods in large quantities, then reselling the goods (usually in smaller quantities) to retailers or industrial or business users.

Viral Marketing Program

A promotional strategy that encourages people to pass along a marketing message to other potential consumers.

Distribution Center

A facility for the receipt, storage, and redistribution of goods to company stores or customers; may be operated by retailers, manufacturers, or distribution specialists.

Fulfillment Centers

Warehouse facilities used to ship merchandise directly to customers.

Direct Marketing Channel

The manufacturer sells directly to the buyer.

Indirect Marketing Channel

When one or more intermediaries work with manufacturers to provide goods and services to customers.

Vertical Channel Conflict

A type of channel conflict in which members of the same marketing channel, for example, manufacturers, wholesalers, and retailers, are in disagreement or discord.

Conventional (Independent) Marketing Channel

A marketing channel in which several independent members—a manufacturer, a wholesaler, and a retailer—each attempts to satisfy its own objectives and maximize its profits, often at the expense of the other members.

Flow 1

Customer to Store

Flow 2

Store to Buyer

Flow 3

Buyer to Manufacturer

Flow 4

Store to Manufacturer

Flow 5

Store to Distribution Center

Flow 6

Manufacture to Distribution Center and Buyer

Electronic Data Interchange (EDI)

The computer-to-computer exchange of business documents from a retailer to a vendor and back.

Retailing

The set of business activities that add value to products and services sold to consumers for their personal or family use; includes products bought at stores, through catalogs, and over the Internet, as well as services like fast-food restaurants, airlines, and hotels.

Multichannel Strategy

Selling in more than one channel (e.g., stores, Internet, catalog).

Channel Structure

The level of difficulty a manufacturer experiences in getting retailers to purchase its products is determined by the degree to which the channel is vertically integrated, as described in Chapter 16; the degree to which the manufacturer has a strong brand or is otherwise desirable in the market; and the relative power of the manufacturer and retailer.

Customer Expectations

Retailers should also know customer preferences regarding manufacturers. Manufacturers, in contrast, need to know where their target market customers expect to find their products and those of their competitors.

Channel Member Characteristics

Several factors pertaining to the channel members themselves help determine the channel structure. Generally, the larger and more sophisticated the channel member, the less likely that it will use supply chain intermediaries.

Distribution Intensity

The number of supply chain members to use at each level of the supply chain.