Marketing CH 14 and 15

price

the overall sacrifice a consumer is willing to make to acquire a specific product or service

company objectives, customers, costs, competition, channel members

What are the 5 C’s of pricing?

profit oriented

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

target profit pricing

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

profit oriented

institute a companywide policy that all products must provide for at least an 18% profit margin to reach a particular profit goal for the firm.  

sales oriented

set prices very low to generate new sales and take sales away from competitors, even if profits suffer.

competitor oriented

to discourage more competitors form entering the market, set prices very low.

customer oriented

target a market segment of consumers who highly value a particular product benefit and set prices relatively high (premium pricing)

revenue

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

profit maximization (price skimming)

This pricing strategy involves setting a relatively high price for a period of time after the product launches

volume maximization (penetration pricing)

This pricing strategy is designed to maximize volume and revenue for a firm, as well as encourage a greater volume of purchases.

survival pricing

This pricing strategy involves lowering prices to the point at which revenue just covers costs, allowing the firm to endure during a difficult time.

target profit pricing, maximizing profits, target return pricing

What surrounds profit orientation?

marginal cost

is the change in total cost that results from producing one additional unit of product

marginal revenue

is the change in total revenue that results from selling one additional unit of product.

% change in quantity demanded/ % change in price

What is the price elasticity of demand formula?

consumer price sensitivity

the degree to which the price of a product affects consumers’ purchasing behavior

elastic demand

demand changes significantly due to a small change in price

inelastic demand

a specific change in price causes only a small change in the amount purchased

straight, vertical line

What does the demand curve look like for perfectly inelastic products?

straight, horizontal line

What does the demand curve look like for perfectly elastic products?

increases; increases

In general, as price _____, demand _____

variable costs

vary with production volume;raw materials, production supplies, commissions, delivery costs

fixed costs

unaffected by production volume; rent, salaries, insurance, utility bills, loan repayments

price x quantity

total revenue formula

fixed costs/ contribution per unit

Break even point formula (units)

break even point

sales volume needed to achieve a profit of 0; costs of producing a product equal the revenue made from selling the product

income effect

the change in demand for a good as a result of a change in the income of a consumer.

substitution effect

Consumers’ ability to substitute other products for the focal brand. (laundry detergent example)

markup pricing

pricing method in which a certain amount is added to the cost of the product to set the final price

cross price elasticity

The percentage change in the quantity of Product A demanded compared with the percentage change in price in Product B

odd pricing

pricing tactic in which a firm prices its products a few cents below the next dollar amount (ex. 1.97 instead. of 2)

prestige pricing

pricing strategy that involves pricing a product higher than competitors to signal that it is of higher quality (ex. Louis Vuitton, Cartier, Mercedes)

seasonal discounts

price reductions given to customers purchasing goods or services out of season (ex. Disney offering best rates in February)

price bundling

strategy in which two or more products are packaged together and sold at a single price; they can charge higher prices for the bundle than they could for the elements individually

one firm controls the market; fewer firms, less price competition

What are the aspects of a monopoly?

many firms sell different products at different prices; many firms, less price competition

What are the aspects of a monopolistic competition?

many firms sell commodities for the same price; many firms, more price competition

What are the aspects of a pure competition?

a handful of firms control the market; fewer firms, more price competition

What are the aspects of an oligopolistic competition?

status quo pricing

only change prices to meet competitors’ prices

competitive parity

prices similar to competitors

reference prices

prices that consumers consider reasonable and fair for a product

internal data

are often critical sources of information for firms in setting price

firm, market, and competitor data

Determining the pricing strategy for any of the firm’s products or services is based on detailed analysis of

everyday low pricing

Which pricing strategy appeals to consumers because it reduces their need to spend time comparing prices at various stores?

coupons

_____ offer a discount on the price of specific items when they’re purchased and are issued by manufacturers and retailers.

they are widely accepted methods of setting short-term prices; they can be used to counter a competitor’s temporary sale prices

Which are true of pricing tactics?

false

True or False: Price discrimination is illegal under all circumstances

driving its competitors out of business

Using predatory pricing, a firm sets a very low price for one or more of its products with the goal of  ______.

predatory pricing

A firm sets extremely low prices for its products so that most customers will stop shopping elsewhere. This will cause other companies to go out of business and leave the firm with no more competition. The firm has engaged in ____

artificially establish

Price fixing is the illegal tactic of cooperating with other firms to ___

Point of sale data

incredibly valuable to firms in setting price
objectives and can be used to demonstrate how the market is
responding to a firm’s price point.