Marketing Principles: Chapters 10 & 11 Pricing Strategies

Vocabulary-style practice flashcards covering pricing fundamentals, major pricing strategies, market structures, price adjustments, competitor responses, and legal issues from Chapters 10 and 11.

Price

The amount of money charged for a product or service, or the sum of all the values that customers exchange for the benefits of having or using the product or service.

Price Ceiling

The upper limit for setting a price based on customer perception of value, above which there is no demand for the product.

Price Floor

The lower limit for setting a price based on product costs, below which no profits can be made.

Considerations in Setting Price

The framework balancing customer perceptions of value (price ceiling) and product costs (price floor), influenced by internal and external considerations such as marketing strategy, market nature, demand, and competitors' strategies.

Customer Value-Based Pricing

A customer-driven pricing approach that sets prices based on buyers' perceptions of value rather than on the seller's cost.

Value-Based Pricing Process

A pricing process that begins with assessing customer needs and value perceptions, setting a target price to match perceived value, determining allowable costs, and designing the product to deliver that desired value at the target price.

Good-Value Pricing

An approach to pricing that offers just the right combination of quality and good service at a fair price.

Everyday Low Pricing (EDLP)

A pricing strategy that involves charging a constant everyday low price with few or no temporary price discounts.

High-Low Pricing

A pricing strategy that involves charging higher prices on an everyday basis while running frequent promotions to lower prices temporarily on selected items.

Value-Added Pricing

Attaching value-added features and services to differentiate a company's offers and justify charging higher prices.

Cost-Based Pricing

A product-driven strategy that sets prices based on the costs of producing, distributing, and selling the product plus a fair rate of return for effort and risk.

Fixed Costs

Costs that do not vary with production or sales level, such as rent, heat, interest, and executive salaries.

Variable Costs

Costs that vary directly with the level of production, such as raw materials and packaging.

Total Costs

The sum of the fixed and variable costs for any given level of production.

Experience Curve

The drop in average cost per unit that comes with accumulated production experience over time.

Cost-Plus Pricing

A pricing method that adds a standard markup to the cost of the product.

Break-Even Pricing

Setting price to break even on the costs of making and marketing a product, or setting a price to achieve a target return.

Competition-Based Pricing

Setting prices based on competitors' strategies, costs, prices, and market offerings rather than purely on company costs or demand.

Target Costing

Pricing that starts with an ideal selling price based on consumer value considerations and then targets costs that will ensure that price is met.

Pure Competition

A market structure consisting of many buyers and sellers trading in a uniform commodity where no single buyer or seller has much effect on the going market price.

Monopolistic Competition

A market structure consisting of many buyers and sellers who trade over a range of prices rather than a single market price because sellers can differentiate their offers.

Oligopolistic Competition

A market structure consisting of a few sellers who are highly sensitive to each other's pricing and marketing strategies, with significant barriers to entry.

Pure Monopoly

A market structure dominated by one seller, which may be a government monopoly, a private regulated monopoly, or a private unregulated monopoly.

Demand Curve

A curve that shows the number of units the market will buy in a given period at different prices, illustrating an inverse relationship where higher prices lead to lower demand.

Price Elasticity of Demand

A measure of the sensitivity or responsiveness of demand to changes in price.

Inelastic Demand

A situation where demand hardly changes with a small change in price.

Elastic Demand

A situation where demand changes greatly with a small change in price.

Market-Skimming Pricing

Setting a high initial price for a new product to skim maximum revenues layer by layer from segments willing to pay the high price.

Market-Penetration Pricing

Setting a low initial price for a new product in order to attract a large number of buyers and win a large market share.

Product Line Pricing

Setting price steps between various products in a product line based on cost differences, customer evaluations of features, and competitors' prices.

Optional-Product Pricing

Pricing optional or accessory products sold along with the main product.

Captive-Product Pricing

Setting prices for products that must be used along with a main product, such as video games for a gaming console.

By-Product Pricing

Setting a price for by-products in order to make the main product's price more competitive.

Product Bundle Pricing

Combining several products and offering the bundle at a reduced price.

Discount Pricing

A price adjustment strategy that offers a straight reduction in price on purchases during a stated period of time or of larger quantities.

Allowances

Promotional money paid by manufacturers to retailers in return for an agreement to feature the manufacturer's products in some way, including trade-in and promotional allowances.

Segmented Pricing

Selling a product or service at two or more prices, where the difference in prices is not based on differences in costs.

Psychological Pricing

A pricing approach that considers the psychology of prices rather than simply economics, using price to communicate information about the product.

Reference Prices

Prices that buyers carry in their minds and refer to when looking at a given product.

Promotional Pricing

Temporarily pricing products below the list price, and sometimes even below cost, to increase short-run sales and create buying urgency.

FOB-Origin Pricing

A geographical pricing strategy in which goods are placed free on board a carrier, and the customer pays the freight cost from the factory to the destination.

Uniform-Delivered Pricing

A geographical pricing strategy in which the company charges the same price plus freight to all customers, regardless of their location.

Zone Pricing

A geographical pricing strategy in which the company sets up two or more zones and all customers within a given zone pay the same total price.

Basing-Point Pricing

A geographical pricing strategy in which the seller designates a given city as a basing point and charges all customers the freight cost from that city to the customer location.

Freight-Absorption Pricing

A geographical pricing strategy in which the seller absorbs all or part of the actual freight charges in order to secure desired business.

Dynamic Pricing

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

International Pricing

Setting prices in specific country markets based on economic conditions, competitive situations, laws and regulations, and wholesaling/retail systems.

Fighting Brand

A lower-price brand launched by a company in response to a competitor's price cut to protect market share.

Price Fixing

An illegal practice where sellers collude with competitors to set prices rather than determining them independently.

Predatory Pricing

Selling below cost with the intention of punishing a competitor or driving competitors out of business to gain higher long-term profits.

Robinson-Patman Act

Federal legislation designed to prevent unfair price discrimination by ensuring sellers offer the same price terms to customers at a given level of trade.

Retail Price Maintenance

An illegal practice where a manufacturer requires a dealer to charge a specific retail price for its product.

Deceptive Pricing

Occurs when a seller states prices or price savings that mislead consumers or are not actually available to consumers, such as bogus comparison prices or scanner fraud.