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What is price?

Money that someone has to give to buy a product.

What is barter?

A transaction where no money is exchanged.

Why is price important to marketers?

It generates revenue, quantifies value, is dynamic, and is influenced by competition.

What is the equation for price?

(Total Cost + Profit) / Quantity → (TC + P) / Q

What is the equation for profit?

(Price × Quantity) - Total Cost → (P × Q) - TC

Define revenue, cost, and profit.

Revenue = P × Q; Cost = TC; Profit = Revenue - TC.

What are the types of cost concepts?

Total cost = Fixed cost + Variable cost.

What are examples of fixed and variable costs?

Fixed costs: Rent; Variable costs: Utilities.

What do AFC, AVC, and ATC stand for?

Average Fixed Cost, Average Variable Cost, and Average Total Cost.

What is marginal cost?

The cost of producing one more unit of a product.

What is breakeven analysis?

Identifies the quantity where a company makes no profit or loss.

How do you calculate the breakeven point?

FC / (Unit Price – Unit Variable Cost)

What is a demand curve?

A graph showing the relationship between price and quantity demanded.

How does price relate to demand for prestige products?

Higher price can increase quantity demanded due to symbolic value.

What is price elasticity of demand?

% Change in Quantity Demanded / % Change in Price.

What does it mean if elasticity (E) > 1?

The product is elastic; substitutes are available.

What does it mean if elasticity (E) < 1?

The product is inelastic; few or no substitutes.

Name the 4 pricing approaches.

Cost-oriented, Demand-oriented, Profit-oriented, Competition-oriented.

What is skimming pricing?

Setting a high initial price and lowering it over time to reach new customer layers.

What is penetration pricing?

Setting a low initial price to quickly gain market share.

What is prestige pricing?

Charging more to create a sense of luxury and exclusivity.

What is target pricing?

Setting price based on what customers are willing to pay, then calculating costs.

What is bundle pricing?

Selling multiple products together at a lower combined price.

What is odd-even pricing?

Pricing items slightly below a whole number (e.g., $4.99).

What is yield management pricing?

Adjusting prices based on consumer behavior to maximize revenue.

What is standard markup pricing?

Adding a set percentage to the cost to determine selling price.

What is cost-plus percentage of cost pricing?

Adding a fixed percentage to the total production cost.

What is cost-plus fixed fee pricing?

A set fee is added, regardless of the actual costs.

What is experience curve pricing?

Lowering prices based on cost savings from increased production experience.

What is target profit pricing?

Setting price to achieve a specific profit (TR - TC).

What is target return-on-sales pricing?

Target profit pricing divided by total revenue (TR).

What is customary pricing?

Setting prices based on tradition or customer expectations.

What is above, at, or below market pricing?

Setting prices relative to competitors’ pricing.

What is loss-leader pricing?

Pricing a product below cost to attract customers to other products.

Why are pricing decisions important to the economy and firms?

Pricing allocates resources and generates essential revenue for business growth.

What are the three main types of pricing objectives?

Profit-oriented, Sales-oriented, and Status Quo.

How does demand impact price?

Demand determines how much consumers are willing to pay, affecting pricing strategies.

What is dynamic pricing?

Adjusting prices in real-time based on market demand.

What is a yield management system?

Software that maximizes revenue from a limited resource by adjusting prices.

What influences price across the product life cycle?

Competition, distribution, promotions, customer demand, internet pricing transparency, and perceived quality.

What are the four major legal constraints on pricing?

Unfair trade practices, price fixing, price discrimination, and predatory pricing.

What are examples of fine-tuning price tactics?

Discounts, allowances, rebates, geographic pricing, and value-based pricing.

price

that which is given up in an exchange to acquire a good or service

revenue

the price charged to customers multiplied by the number of units sold

profit

revenue minus expenses

return on investment (ROI)

net profit after taxes divided by total assets

market share

a company’s product sales as a percentage of total sales for that industry

status quo pricing

a pricing objective that maintains existing prices or meets the competition’s prices

demand

the quantity of a product that will be sold in the market at various prices for a specified period

supply

the quantity of a product that will be offered to the market by a supplier at various prices for a specified period

elasticity of demand

consumers’ responsiveness or sensitivity to changes in price

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

dynamic pricing

a strategy whereby prices are adjusted over time to maximize a company’s revenues

yield management systems (YMS)

a technique for adjusting prices that uses complex mathematical software to profitably fill unused capacity by discounting early purchases, limiting early sales at these discounted prices, and overbooking capacity

variable cost

a cost that varies with changes in the level of output

fixed cost

a cost that does not change as output is increased or decreased

markup pricing

the cost of buying the product from the producer, plus amounts for profit and for expenses not otherwise accounted for

keystoning

the practice of marking up prices by 100 percent, or doubling the cost

break-even analysis

a method of determining what sales volume must be reached before total revenue equals total costs

extranet

a private electronic network that links a company with its suppliers and customers

price strategy

a basic, long-term pricing framework that establishes the initial price for a product and the intended direction for price movements over the product life cycle

price skimming

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

penetration pricing

a pricing policy whereby a firm charges a relatively low price for a product when it is first rolled out as a way to reach the mass market

unfair trade practice acts

laws that prohibit wholesalers and retailers from selling below cost

price fixing

an agreement between two or more firms on the price they will charge for a product

predatory pricing

the practice of charging a very low price for a product with the intent of driving competitors out of business or out of a market

base price

the general price level at which the company expects to sell the good or service

quantity discount

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

cumulative quantity discount

a deduction from list price that applies to the buyer’s total purchases made during a specific period

noncumulative quantity discount

a deduction from list price that applies to a single order rather than to the total volume of orders placed during a certain period

cash discount

a price reduction offered to a consumer, an industrial user, or a marketing intermediary in return for prompt payment of a bill

functional discount (trade discount)

a discount to wholesalers and retailers for performing channel functions

seasonal discount

a price reduction for buying merchandise out of season

promotional allowance (trade allowance)

a payment to a dealer for promoting the manufacturer’s products

rebate

a cash refund given for the purchase of a product during a specific period

value-based pricing

setting the price at a level that seems to the customer to be a good price compared to the prices of other options

FOB origin pricing

a price tactic that requires the buyer to absorb the freight costs from the shipping point (“free on board”)

uniform delivered pricing

a price tactic in which the seller pays the actual freight charges and bills every purchaser an identical, flat freight charge

zone pricing

a modification of uniform delivered pricing that divides the United States (or the total market) into segments or zones and charges a flat freight rate to all customers in a given zone

freight absorption pricing

a price tactic in which the seller pays all or part of the actual freight charges and does not pass them on to the buyer

basing-point pricing

a price tactic that charges freight from a given (basing) point, regardless of the city from which the goods are shipped

single-price tactic

a price tactic that offers all goods and services at the same price (or perhaps two or three prices)

flexible pricing (variable pricing)

a price tactic in which different customers pay different prices for essentially the same merchandise bought in equal quantities

price lining

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

leader pricing (loss-leader pricing)

a price tactic in which a product is sold near or even below cost in the hope that shoppers will buy other items once they are in the store

bait pricing

a price tactic that tries to get consumers into a store through false or misleading price advertising and then uses high-pressure selling to persuade consumers to buy more expensive merchandise

odd-even pricing (psychological pricing)

a price tactic that uses odd-numbered prices to connote bargains and even-numbered prices to imply quality

price bundling

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

two-part pricing

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

consumer penalty

an extra fee paid by the consumer for violating the terms of the purchase agreement

What is a Consumer-to-Consumer (C2C) market?

A market where consumers sell directly to other consumers. Example: Facebook Marketplace. It has the most potential for growth.

What is a Consumer-to-Business (C2B) market?

A market where individual consumers offer products or services to businesses. Example: Selling through Amazon.

What is a Consumer-to-Government (C2G) market?

A market where consumers interact with the government, often involving services like health insurance.

What is a Business-to-Consumer (B2C) market?

A market where businesses sell directly to individual consumers. Examples: Amazon, Priceline.com.

What is a Business-to-Business (B2B) market?

A market involving transactions between businesses or organizations. It has the highest volume of financial transactions.

What is a Business-to-Government (B2G) market?

A market where businesses provide goods or services to government agencies. Example: Government loans.

What is a Government-to-Consumer (G2C) market?

A market where the government provides services to individuals. Example: Taxes collected from citizens.

What is a Government-to-Business (G2B) market?

A market where the government provides services to businesses. Example: Taxes on businesses.