CH.11 Small business pricing, distribution, location

skimming

Setting a price at the highest level the market will bear, usually because there is no competition at the time (e.g. any inelastic product like gasoline

referral discount

A discount given to a customer who refers a friend to the business

letter of credit

A document issued by a bank that guarantees a buyer's payment for a specified period of time upon compliance with specified terms

documentary draft

A draft that can be exercised only when presented with specified shipping documents

sales promotion

A form of communication that encourages the customer to act immediately, such as coupons, sales, or contests

direct mail

A method of selling in which catalogs, brochures, letters, videos, and other pieces of marketing materials are mailed directly to customers from which they can mail in, call in, or email an order. Direct faxing and direct emailing are more modern forms of direct mail.

born international

A new firm that opens a website immediately, thus being exposed to customers from around the world

sheltered workshop

A nonprofit organization or institution that provides business services by using workers who have disabilities or who are rehabilitated.

markup pricing

A price-setting method where an amount is added to the cost of a product to set the retail price and provide a profit

random discounting

A sale run on a schedule that is unpredictable to the customer Price discrimination Senior citizens' discounts

manufacturer's suggested retail price

A target price set by a manufacturer for a product or service intended to provide profit for each intermediary in the distribution channel

co-working space

A type of "incubator lite" offering low-cost shared space and basic business services (Wi-Fi, desks, coffee, conference room, copier, etc.) for a daily, weekly, or monthly rental fee. Unlike incubators, co-working spaces rarely get any equity in the businesses using the space

e-tailer

An electronic retailer; a store that exists only on the Internet

external reference price

An estimation of what a price should be based on information external to a consumer, such as advice, advertisements, or comparison shopping

contract manufacturing

An existing firm with the correct manufacturing capabilities makes your product for you

wholesaler

An intermediary business that buys (typically in large quantities) and sells (typically in smaller quantities) to businesses rather than consumers

agent

An intermediary business that represents a manufacturer's product or service to other business-to-business intermediary firms

retailer

An intermediary business that sells to consumers or end users of a product (typically in single or small quantities)

Accelerator

An organization that supports start-ups, typically of a particular type (e.g., Internet, biotech, fashion, sports, women-owned firms, etc.) with a financial investment, free or inexpensive office space, mentoring, a variety of free or low-cost support services, and other resources. The goal of an accelerator is to accelerate a start-up from its early stages to being ready to pitch for investment. Most accelerators take an equity stake in the companies they help

bundling

Combining two or more products in one unit and pricing it less than if the units were sold separately (e.g. an oil change is $49 and tire rotation is $69, but if you do them both, it will cost only $99)

traffic generators

Other businesses that bring customers (generate traffic) to the area

prestige pricing

Setting a price above that of the competition to indicate your product is a status symbol (e.g. Pricing of luxury cars, the best perfumes)

partitioned pricing

Setting the price for a base item and then charging extra for each additional component (e.g. The computer is only $699, but the printer is another $100 and cables are $30 and the modem is ...)

price lining

The practice of setting (usually) three price points: good quality, better quality, best quality (e.g. Marriott hotels are high priced, but the Marriott Courtyards are moderately priced)

guerrilla marketing

The use of creative and relatively inexpensive ways to reach your customer. Examples include doorknob hangers, flyers under windshield wipers, T-shirts, balloons, and messages written on sidewalks

internal reference price

A consumer's mental image of what a product's price should be based on experience and the consumer's estimate of what the comparative value might be

price gouging

Charging an outrageously high price for something

off-peak pricing

Charging lower prices at certain times to encourage customers to come during slack periods (e.g. Happy hours or late-night specials at restaurants)

multiple or bonus pack

Combining more than one unit of the same product and pricing it lower than if each unit were sold separately

telemarketing

Contact via telephone for the express purpose of selling a product or service. Telemarketing can either be inbound (customer calls company) or outbound (company calls customer)

channels

People and firms who connect producers of goods and services with customers

indirect exporting

Exporting using intermediaries such as agents, export management companies, or export trading companies

direct exporting

Exporting using no intermediaries

freight forwarders

Firms specializing in arranging international shipments—packaging, transportation, and paperwork

elasticity

From economics, the idea that the market's demand for a product or service is sensitive to changes in its price

direct sales

Methods of going directly to your customer in order to sell your product. Vending machines, door-to-door salespeople, leasing space at a craft fair, farmer's markets, party sales, and most industrial sales are methods of direct selling

direct response advertising

Placing an advertisement in a magazine or newspaper, on television or radio, or in any other media. The ad contains an order blank with a phone number and email or regular mail address with the intent of having the customer place an immediate order

elastic product

Product for which there are any number of substitutes and for which a change in price makes a difference in quantity purchased

inelastic product

Product for which there are few substitutes and for which a change in price makes very little difference in quantity purchased

periodic discounting

Sales conducted at predictable intervals, such as before major holidays (e.g. Holiday sale, back-to-school sale)

mail order

Sales made from ads in newspapers or magazines, with purchases taken online or by phone as well as by mail.

direct marketing

Selling your goods or services to consumers without intermediaries, typically to select customer groups and typically with tracking of the results

premium pricing

Setting a price above that of the competition to indicate a higher quality

captive pricing

Setting the price for an item relatively low and then charging much higher prices for the expendables it uses (e.g. Low-price ink-jet printers, but high-priced replacement ink cartridges

Markup

The amount an entrepreneur adds to costs to provide a profit

margin

The amount of profit, usually stated as a percentage of the total price

law of supply and demand

The economic theory that describes how the demand for products (or services) and the supply of them affect each other

manufacturer

The entity that produces a product or service to be sold

Optimum Price

The highest price that will produce your desired level of sales in your intended market

just-in-time (JIT) inventory

The practice of purchasing and accepting delivery of inventory only after it has been sold to the final customer

Micro-inventory

The purchase of inventory only after a sale is made; very typical with Internet firms

Distribution

process of getting your product to the customer

Direct marketing

relatively inexpensive and provides control over where your product goes, consumer information, product use, and pricing