CHAPTER 2 ( Page 11 to 34)

ABSOPRTION PRICING

A method for setting prices, under which the price of a product includes all the variable costs attributable to it, as well as proportion of all fixed costs.

CUSTOMER PERVEIVED VALUE PRICING

The value by which customers are willing to pay for a particular product or service based on their perception about the product.

CUSTOMER SEGMENT PRICING

A strategy where a company charges different prices for the same product or service to different customer groups based on their characteristics, behaviors, and willingness to pay.

SINGLE TARGET MARKET APPROACH

Segmenting the market and picking one of the homogeneous segments as the firm’s target market.

MULTIPLE TARGET MARKET APPROACH

Segmenting the market needing a different marketing mix.

COMBINED TARGET MARKET APPROACH

Combining two or more submarkets into one larger target market as a basis for one strategy.

CUSTOMER CHARACTERISTICS

A price segmentation technique that offer discounts to a specific group or price list specifically tailored for group of customers.

TRANSACTION CHARACTERISTICS

Price segmentation technique that refers to the things you learn at the time of the transaction that will help you understand the customer’s willingness to pay.

BEHAVIOR

Price segmentation technique is about putting hurdles in front of buyers so they have to prove they are price sensitive.

1. SINGLE TARGET MARKET APPROACH

2. MULTIPLE TARGET MARKET APPROACH

3. COMBINED TARGET MARKET APPROACH

There are three basic ways to develop market-oriented strategies in a broad product market.

VALUE BASED PRICING

Setting of prices based on buyer’s perceptions of value rather than on the seller’s cost.

VALUE

The key determination of contribution to margin and market share as well as the force that increase sales, provides best strategy for growth, and propels the firm towards rapidly achieving its profitability goal

ORAL COMMUNICATION

Refers to the manner in which the retailer makes himself known to his prospective customers.

FREIGHT ABSORPTION PRICING

The seller of goods includes the cost of the freight to the buyer in its calculation of the price of the product.

1. IT IS SIMPLE.

2. LIKELY TO PRODUCE A PROFIT

What are the advantages of using the absorption pricing method?

1. IGNORES COMPETITION

2. IGNORES PRICE ELASTICITY

What are the disadvantages of using absorption pricing method?

LEARNING CURVE

It refers to the gain a company experiences in producing a product over a period of time.

EXPERIENCE CURVE

Refers to a diagrammatic representation of the inverse relationship between the total calue added costs of a product and the company experience in manufacturing and marketing.

FALSE.

Answer: Experience learning curve depicts the overall cost savings as the production while learning curve is a graphical representation that shows the decrease in average labor cost in repretitive operations as the employee obtain more learning.

TRUE OR FALSE: Learning curve depicts the overall cost savings as the production while experience learning curve is a graphical representation that shows the decrease in average labor cost in repretitive operations as the employee obtain more learning.

1. Time to complete a task will decrease the more time the task is performed.

2. The decrease will decrease in decreasing rate.

3. The decrease will follow a predictable pattern.

What are the three major assumptions in the learning curve effect?

ACTIVITY BASED COSTING SYSTEM

A method of accounting that can be used to determine the total cost of the production in developing a new product.

ACTIVITY BASED COSTING

The process for assigning costs to activities.

1. IDENTIFY WHICH ACTIVITIES ARE NECESSARY IN CREATING A PRODUCT.

2. SEPARATE EACH ACTIVITY INTO ITS OWN COST POOL

3. DETERMINE THE TOTAL OVERHEAD OF EACH COST POOL.

4. DIVIDE THE TOTAL OVERHEAD IN EACH COST POOL BY THE TOTAL COST DRIVERS.

5. COMPUTE HOW MANY PARTS, UNITS, ETC., THAT THE ACTIVITY USED AND MULTIPLY IT BY THE COST DRIVERS RATE.

What are the steps in activity based costing?

STRATEGIC ALLIANCE

An arrangement between two companies to undertake a mutually beneficial project while each retains its independence.

ANALYZING COMPETITORS COSTS AND PRICES

In setting price, it determines market demand and costs, competitors costs, prices, and possible price reactions help the firm establish where to set its price.

AUCTION

A sales event wherein potential buyers created competitive bids on assets or services either in an open or closed format.

INTERNET AUCTION

The use of e-bay, onlinceauction.com, and ebid in conducting an auction.

REVERSE AUCTION

The buyer, rather than the seller, specifies the item or service that he or she is looking for.

ENGLISH AUCTIONS

It is composed of ascending bids where there is one seller and many buyers.

DUTCH AUCTIONS

It is composed of descending bids where there is one seller and many buyers or one buyer and many sellers.

SEALED-BID AUCTIONS

SUppliers can submit only one bid and cannot know the other bids. Commonly found in the government.

BRAND PRICE TRADE OFF

One of the statistical technique used in market research and marketing sciences. It models the relationships between brands and the prices they command relative to other brands.

BAIT AND SWITCH TACTICS

A sales tactic that gives customer with low prices to not available iterms to sell them on a similar and pricier item.

BONUS PACK

Offers the consumer extra amount of a product at the regular price by providing extra units.

BREAK EVEN SALES

The amount of revenue at which a certein enterprise earns a profit of zero.

BROAD COST LEADER

This strategy attempts to be the low cost producer in every segment of the market.

BROAD DIFFERENTIATION

This was defined as a strategy that will seek to create maximum awareness and brand equity. It wants to be well known as a maker of high quality/highly desirable products.

BROAD PRICE POLICY

Sets the overall direction for having pricing efforts and making sure the the price decisions are coordinated with the target market, image, and other marketing elements.

1. PRICE SKIMMING

2. PENETRATION PRICING

Broad price police provides two primary types of new product pricing strategies which are:

SKIMMING PRICING

The strategy used during the introduction statge of the product life cycle that sets its highest possible price.

PENETRATION PRICING

Charging low price for new product to establish market share rapidly to prevent competitors in entering the market and urge product trial by the target market.

CAPTIVE PRICING

The firm tries to price their product low to attract buyers and recover from the bigger volume expected in the accessories or consumables.

CAPTIVE PRICING

It is used when the value of main product is very low but the value of the supporting product, which is necessary for working of main product is high.

DISTRIBUTION CHANNELS

Set of independent organizations that are involved in the process of making the product available for use or for consumption by customer or individual level.

CHANNEL PRICING

The use of distribution channel as a factor in pricing. It is common for firms to offer different prices depending where you buy an item.

CLEARANCE CHANNELS

Using of dedicated channels to clear excess inventory out of sight of their regular customers.

COST (Channel Pricing)

It is using pricing to recoup the costs of expensive channels.

PENETRATION PRICING (Channel Pricing)

Charging less when you open a new channel in order to gain a market share,

UNIFIED PRICING

It is common for firms to make significant efforts to unify prices across channel region.

PRICE DISCRIMINATION

Channels are good way to differentiate between customers who are willing to pay more for your products and those who are price senstive.

MARKDOWN

Cutting down a certain amount of percentage from the merchandise original price.

COMPETITION BASED PRICE STRATEGY

Also known as marketed oriented pricing strategy, is an approach in which e-commerce retailers set their online prices based on competition rather that customer oriented pricing.

COMPLEMENTARY PRICING STRATEGY

Involves selling packages or set of goods or services at lower prices than they would have actually cost if sold separately.

COST PLUS PRICING

An approach that adds a standard markup to the cost of the product,

FULL COST PRICING

Type of cost based pricing that takes into consideration both variable, fixed costs and a percent mark up.

DIRECT COST PRICING

Type of cost based pricing where a variable costs plus a percentage mark up.

1. A straightforward and simple strategy.

2. Ensures that all production and overhead costs are covered before profits are calculated.

3. Ensures a steady and consistent rate of profit generation.

4. To find the maximum possible cost of product manufafcturing allowable if the final selling price is fixed.

5. To find the price of the customized product this has been produced as per the specifications of a single buyer.

6. In cases where the customers have enough knowledge about a product costs and thus has an upper hand.

Give atleast 3 advantages of cost based pricing.

1. May lead to underpriced products.

2. May sometimes ignore consumer’s role in the overall market.

3. May ignore the opportunity cost of the investment.

DISADVANTAGES OF COST ABSED PRICING

TARGET PROFIT

One of cost based pricing types where prices are set towards attaining a satisfactory rate of return.

COST ADVANTAGE

A competitive edge gained by a company when it can producr goods or services at a lower costs of it rivals.

SUSTAINABLE COMPETITIVE ADVANTAGE

Means to have a long term advancement with the having cost advantage.

COST ORIENTED PRICING

Also known as cost based pricing strategy, a strategy where prices are determined by calculating the total costs of producing the product and adding desired mark up not taking the account the willingness of customer to buy.

CUSTOMARY PRICING

Some prices can remain the same for so long that they almost become a tradition.