Marketing - Chapter 12: Pricing Concepts and Management

price competition

Emphasizing price as an issue and matching or beating competitors’ prices

nonprice competition

Emphasizing factors other than price to distinguish a product from competing brands

pricing objectives

Goals that describe what a firm wants to achieve through pricing

demand curve

A graph of the quantity of products a firm expects to sell at various prices if other factors remain constant

price elasticity of demand

A measure of the sensitivity of demand to changes in price

fixed costs

Costs that do not vary with changes in the number of units produced or sold

average fixed cost

the fixed cost per unit produced

variable costs

Costs that vary directly with changes in the number of units produced or sold

average variable cost

The variable cost per unit produced

total cost

The sum of average fixed and average variable costs, times the quantity produced

average total cost

The sum of the average fixed cost and the average variable cost

marginal cost (MC)

The extra cost incurred by producing one more unit of a product

marginal revenue (MR)

The change in total revenue resulting from the sale of an additional unit of a product

breakeven point

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

cost-based pricing

Adding a dollar amount or a percentage of the cost to the cost of the product to establish the price

cost-plus pricing

Adding a percentage of the manufacturer’s total cost to that total cost to establish the price of a custom-made product

markup pricing

Adding to the cost of the product a predetermined percentage of that cost

demand-based pricing

Pricing based on the level of demand for the product

competition-based pricing

Pricing influenced primarily by competitor’s prices

price skimming

Charging the highest possible price that buyers who most desire the product will pay

penetration pricing

Setting prices below those of competing brands to penetrate a market and gain a significant market share quickly

differential pricing

Charging different prices to different buyers for the same quality and quantity of product

negotiated pricing

Establishing a final price through bargaining between seller and customer

secondary-market pricing

Setting one price for the primary target market and a different price for another market

periodic discounting

Temporary reduction of prices on a patterned or systematic basis

random discounting

Temporary reduction of prices on an unsystematic basis

psychological pricing

Strategies that encourage purchases based on consumers’ emotional responses, rather than on economically rational ones

odd-number pricing

The strategy of setting prices using odd numbers that are slightly below whole-dollar amounts

multiple-unit pricing

The strategy of setting a single price for two or more units

reference pricing

Pricing a product at a moderate level and positioning it next to a more expensive model or brand

bundle pricing

Packaging together two or more complementary products and selling them for a single price

everyday low prices (EDLPs)

Setting a low price for products on a consistent basis

customary pricing

Pricing on the basis of tradition

captive pricing

Pricing the basic product in a product line low, but pricing related items at a higher level

premium pricing

Pricing the highest-quality or most versatile products higher than other models in the product line

price lining

The strategy of selling goods only at certain predetermined prices that reflect definite price breaks

price leaders

Products priced below the usual markup, near cost, or below cost

special-event pricing

Advertised sales or price cutting linked to a holiday, season, or event

comparison discounting

Setting a price at a specific level and comparing it with a higher price

geographic pricing

Reductions for transportation and other costs related to the physical distance between buyer and seller

transfer pricing

Prices charged in sales between an organization’s units

discount

A deduction from the price of an item