Pricing

Price

The amount of money exchanged for a good or service; what a person gives up

Revenue

Price x Quantity

Profit

Total revenue minus total cost

Cost

Amount of money it takes to put an item on the market

Demand

the quantity of a good or service that consumers are willing and able to buy (assumes perfect conditions)

Demand Curve

a graph of the quantity of products expected to be sold at various prices if other factors remain constant

Elastic demand

A situation in which consumer demand is sensitive to changes in price

Inelastic demand

A situation in which an increase or a decrease in price will not significantly affect demand for the product

Factors that cause a shift in demand

Consumer tastes substitutes complements, expectations, and number of consumers

Variable costs

er-unit costs of production that will fluctuate depending on how many units a firm produces

Fixed cost

Costs that do not vary with the quantity of output produced

Total costs

fixed cost + variable costs

Marginal cost

the cost of producing one more unit of a good

marginal revenue

the additional income from selling one more unit of a good; sometimes equal to price

break even point

the point at which the cost of producing a product equal the revenue made from selling the product

gross margin

Sales - COGS

Cost- plus pricing (markup pricing)

Adding a standard markup to the cost of the product; simplest pricing method; cost-oriented method

Demand-based pricing

a price-setting method based on estimates of demand at different prices

Yield management pricing

the charging of different prices to maximize revenue for a set amount of capacity at any given time

target costing

pricing that starts with an ideal selling price, then targets costs that will ensure that the price is met

cost complement

the difference between retail percent (100%) and markup percent; used to convert selling price back to cost for target costing and inventory purposes

Price leadership

the strategy by which one or more dominant firms set the pricing practices that all competitors in an industry follow

Everyday low pricing (EDLP)

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  pricing policy whereby a firm charges a high introductory price, often coupled with heavy promotion

Market penetration

a marketing strategy that tries to increase market share among existing customers

trial pricing

pricing a new product low for a limited period of time in order to lower the risk for a customer

two part pricing

a price tactic that charges two separate amounts to consume a single good or service

payment pricing

a pricing tactic that breaks up the total price into smaller amounts payable over time

payment pricing

pricing bundling

marketing two or more products in a single package for a special price

Captive pricing

Pricing the basic product in a product line low, while pricing related items higher

Value

Generally this is expressed as the ratio between what a customers gets and what he or she spends

value-conscious customer

a market segment that is conscious of both price and quality

odd pricing

the practice of ending prices in numbers below even dollars and cents in order to create a perception of greater value

even pricing

A pricing tactic in which the price is expressed in whole dollar increments

price lining

the practice of offering a product line with several items at specific price points

prestige pricing

charging a high price to help promote a high-quality image

trade discount

a  reduction in the list price granted to a merchandising business

quantity discount

a price reduction offered to buyers buying in multiple units or above a specified dollar amount

cash discount

A deduction that a vendor allows on the invoice amount to encourage prompt payment

seasonal discount

a  price reduction for buying merchandise out of season

allowance

promotional money paid by manufacturers to retailers in return for an agreement to feature the manufacturer's products in some way

transfer pricing

Pricing of goods, services, and intangible property bought and sold by operating units or divisions of a company doing business with an affiliate in another jurisdiction

FOB

free on board

FOB factory

the buyer has title when the goods leave the seller's facility

FOB destination

Freight terms indicating that ownership of goods remains with the seller until the goods reach the buyer.

zone pricing

making an average freight charge to all buyers within specific geographic areas

base-point pricing

geographic pricing that combines factory price and freight charges from the base point nearest the buyer

freight absorption pricing

seller absorbs all or part of the freight charges to get the desired business.

dynamic pricing

adjusting prices continually to meet the characteristics and needs of individual customers and situations

freemium pricing

a hybrid pricing strategy of offering some products for free while charging for others, or offering a product for free to some customers while charging others for it

reverse auction

occurs when a buyer communicates a need for something and would-be suppliers bid in competition with each other

digital wallet

An application that runs on mobile devices. It securely stores your payment information and passwords and allows you to pay for items without needing your physical cards

break-even formula

Fixed costs/ (price- variable costs)

sharing economy

the way connected consumers exchange goods and services with each other through a digital marketplace

peak load pricing

practice of setting prices highest when the quantity demanded for the product approaches capacity

surge pricing

a pricing strategy in which the price of a product is raised as demand for that product goes up and lowered as demand goes down

Shift demand

When a determinant of demand other than price changes in other words, demand for goods and services changes, even though price doesn’t

Uniform geographic pricing

Occurs when a company charges the same price plus freight to call customers, regardless of their location

Sherman anti trust act

A landmark US law that banned businesses from colluding or merging to form a monopoly

Clayton act

Defined as illegal certain business practices that are conducive to the formation of monopolies or that result from them

Predatory pricing

The pricing of goods or services is so low that other suppliers cannot compete and are forced to leave the market

Price fixing

An illegal agreement among competitors to raise, lower, maintain, or stabilize prices or price levels

Robinson Batman act

A US antitrust law preventing large franchises and chains from engaging in price discrimination against small businesses

Value priced pricing

Customers that are concerned with both price and quality