Chapter 19 - Pricing Concepts
allowances
A concession in price to achieve a desired goal
price increases
Demand increases as ...
opposite change in total revenue
If demand is elastic, a change in price causes an...
parallel change in total revenue
Inelastic demand results in a...
true
T or F: An organization must also ensure that transfer pricing is fair to all units involved in the transactions
zone pricing
pricing based on transportation costs within major geographic zones
marginal revenue
the change in total revenue resulting from the sale of an additional unit of a product
demand curves
A graph of the quantity of products a firm expects to sell at various prices if other factors remain constant Illustrates that, as price falls, the quantity demanded usually increases. However, for prestige products, there is a direct positive relationship between price and quantity demanded
c
A price developed in the consumer's mind through experience with the product is called a(n) a. frame of reference. b. external reference price. c. internal reference price. d. value-price guideline. e. internalized price
seasonal discounts
A price reduction given to buyers for purchasing goods or services out of season
price or nonprice basis
A product offering can compete on either a
b
A product under nonprice competition would most likely NOT succeed in the market if a. its quality has been upgraded. b. it is easy to duplicate. c. it is packaged differently from similar products. d. a new advertising campaign is established for it. e. it is priced near the competitors' price.
trade discounts
A reduction off the list price a producer gives to an intermediary for performing certain functions
freight absorption pricing
Absorption of all or part of actual freight costs by the seller
predatory pricing
Also called undercutting, involves the intent to set a product's price so low that rival firms cannot compete and therefore withdraw from the marketplace
marginal or breakeven analysis
Analysis of demand, cost, and profit relationships can be accomplished through
Other Marketing-Mix Variables
Because of the interrelationship among the marketing-mix variables; price can affect product, promotion, and distribution decisions
Competition
Knowledge of the prices charged for competing brands is essential to allow the firm to adjust its prices relative to competitors' prices
Costs
Most marketers view a product's cost as the floor below which a product cannot be priced
aggressive
Price fluctuates frequently, and price competition among sellers is ...
changes in the external environment
Price is a key element in the marketing mix, because it relates directly to generation of total revenue. It's the only variable in the marketing mix that can be adjusted quickly and easily to respond to...
transfer pricing
Prices charged in sales between an organization's units
cumulative discounts
Quantity discounts aggregated over a stated time period
geographic pricing
Reductions for transportation and other costs related to the physical distance between buyer and seller
c
Sellers that emphasize distinctive product features to encourage brand preferences among customers, rather than price, are practicing a. brand differentiation. b. competitor differentiation. c. nonprice competition. d. price competition. e. product competition.
true
T or F: Marginal analysis is only a model It offers little help in pricing new products before costs and revenues are established
true
T or F: To use breakeven analysis effectively, a marketer should determine the breakeven point for each of several alternative prices This makes it possible to compare the effects on total revenue, total costs, and the breakeven point for each price under consideration
Trade, Quantity, Cash, Seasonal, Allowance
The categories of price discounts include:
Company's management strategy and the nature of the units' interaction
The choice of transfer pricing method depends on the...
marginal cost
The extra cost incurred by producing one more unit of a product
c
The types of prices that appear most often in ads are ___, while the types of prices that occur least often in ads are ____ prices. a. sale; reference b. discount; cost-plus c. bargain; premium d. comparison; cost-plus
deceptive pricing
The use of false or misleading statements or practices to persuade buyers that a product is a better deal than it really is
pricing objectives
These heavily influence price-setting decisions
Actual full cost, Standard full cost, Cost plus investment, Market-based cost
Transfer price is determined by one of the following methods:
organizational and marketing objectives pricing objectives costs other marketing-mix variables channel member expectations customer interpretation and response competition legal and regulatory issues
WHAT ARE THE EIGHT KEY FACTORS THAT MAY INFLUENCE MARKTERS' PRICING DECISIONS?
Channel Member Expectations
What the revenue channel members expect for their functions must also be considered when making price decisions
e
What type of discount is given to a business purchaser for performing activities such as transporting, storing, and selling? a. Cash b. Geographic c. Service d. Quantity e. Trade
organizational and marketing objectives
When setting prices, marketers should make decisions consistent with the organization's goals and mission
external reference price
a comparison price provided by others
price elasticity of demand
a measure of the sensitivity of demand to changes in price If demand is elastic, a change in price causes and opposite change in total revenue Inelastic demand results in a parallel change in total revenue when a product's price is changed
internal reference price
a price developed in the buyer's mind through experience with the product
FOB destination
a price indicating the producer is absorbing shipping costs
cash discounts
a price reduction given to buyers for prompt payment or cash payment
price fixing
an agreement among firms to charge one price for the same good
cost plus investment
calculated as full cost plus the cost of a portion of the selling unit's assets used for internal needs
market-based cost
calculated at the market price less a small discount to reflect the lack of sales effort and other expenses
standard full cost
calculated based on what it would cost to product the goods at full plant capacity
actual full cost
calculated by dividing all fixed and variable expenses for a period into the number of units produced
price competition
emphasizing price as an issue and matching or beating competitors' prices
price discrimination
employing price differentials that injure competition by giving one or more buyers a competitive advantage
base point pricing
geographic pricing that combines factory price and freight charges from the base point nearest the buyer
price war
involves two or more companies engaging in intense price competition, often in an effort to boost market share
price
key element in the marketing mix, because it relates directly to generation of total revenue. It's the only variable in the marketing mix that can be adjusted quickly and easily to respond to changes in the external environment
noncumulative discounts
one-time price reductions based on the number of units purchased, the dollar value of the order, or the product mix purchased
breakeven point
the point at which the costs of producing a product equal the revenue made from selling the product
FOB factory
the price of merchandise at the factory before shipment
barter
the trading of products Oldest form of exchange
price
the value paid for a product in a marketing exchange
breakeven analysis
this approach assumes the quantity demand is basically fixed and the major task is to set prices to recover costs
Customer Interpretation and Response
Buyer's perception of price may vary Some consumer segments are sensitive to price, but others may not be Thus, before determining price, a marketer needs to be aware of its importance to the target market
uniform geographic pricing
Charging all customers the same price, regardless of geographic location
quantity discounts
Deductions from the list price for purchasing in large quantities
breakeven analysis
Determines the number of units that must be sold to break even; important in setting price
nonprice competition
Emphasizing factors other than price to distinguish a product from competing brands Establishing brand loyalty by using non-price competition works best when the product can be physically differentiated and the customer can recognize these differences
physically differentiated
Establishing brand loyalty by using non-price competition works best when the product can be WHAT...and the customer can recognize these differences
marginal analysis
Examines what happens to a firm's costs and revenues when production or sales volume is changed by one unit Combines the demand curve with the firm's costs to develop a price that yields maximum profit
Legal and Regulatory Issues
Government regulations and legislation also influence pricing decisions, especially with regard to practices such as price fixing, deceptive pricing, and predatory pricing