MKT 3010 Test 3 Chapter 16 Pricing
deceptive pricing
An illegal practice that involves intentionally misleading customers with price promotions.
profit margin
The amount a product sells for above the total cost of the product itself.
marginal cost
The change in total cost that results from producing one additional unit of product.
marginal revenue
The change in total revenue that results from selling one additional unit of product.
price sensitivity
The degree to which the price of a product affects consumers' purchasing behavior.
break even point
The point at which the costs of producing a product equal the revenue made from selling the product.
price discrimination
The practice of charging different customers different prices for the same product.
predatory pricing
The practice of first setting prices low with the intention of pushing competitors out of the market or keeping new competitors from entering the market, and then raising prices to normal levels.
reference prices
The prices that consumers consider reasonable and fair for a product.
break even analysis
The process of calculating the break-even point, which equals the sales volume needed to achieve a profit of zero.
Gray market
The sale of branded products through legal but unauthorized distribution channels.
price gouge
To overcharge a customer in times of great need, often when no other option exists
price elasticity of demand
A measure of price sensitivity that gives the percentage change in quantity demanded in response to a percentage change in price (holding constant all the other determinants of demand, such as income).
markup pricing (cost-plus pricing)
A pricing method in which a certain amount is added to the cost of the product to set the final price. Also known as cost-plus pricing.
survival pricing
A pricing strategy that involves lowering prices to the point at which revenue just covers costs, allowing the firm to endure during a difficult time. designed to maximize cash flow over the short term and is typically implemented by a struggling firm prices are lowered to the point at which revenue just covers costs, allowing the firm to endure during a difficult time
prestige pricing
A pricing strategy that involves pricing a product higher than competitors to signal that it is of higher quality.
Profit Maximization or price skimming
A pricing strategy that involves setting a relatively high price for a period of time after the product launches. Also known as price skimming. designed to maximize profits on each unit sold prices are set high for a period of time after the product launches and then decreased over time
volume maximization or penetration pricing
A pricing strategy that involves setting prices low to encourage a greater volume of purchases. Also known as penetration pricing. designed to maximize volume and revenue for a firm; encourage a greater volume of purchases products and services are offered at a lower price encouraging customers to purchase more
odd pricing
A pricing tactic in which a firm prices products a few cents below the next dollar amount.
dumping
A protectionist strategy in which a company sells its exports to another country at a lower price than it sells the same product in its domestic market.
MaryAnn must consider the various expenses involved with making and delivering each crepe, for example, ingredients, overhead expenses for her food truck, and the time she spends making each crepe. These considerations represent which step of the price-setting process?
determine the costs
A company's employees would like the company to open an onsite cafeteria. The employees expect that the cafeteria will charge about $5 for breakfast and about $8 for lunch. Turns out, the company charges $8 for breakfast and $12 for lunch
elastic demand
Most college students in a college town struggle to make ends meet. Occasionally they treat themselves to a cup of coffee at Starbucks. The price of a cup of Starbucks coffee has recently risen from $3.50 to $5.00
elastic demand
Most people in the United States use paper towels. Bounty is a popular brand and often runs a special in which it decreases the price of its paper towels by 50 percent
elastic demand
After setting the pricing objective, the next step in Amy's price-setting process is to
evaluate demand
MaryAnn understands that if she charges a price that is too high for her crepes, fewer people will want to buy them. In which step of the pricing process does MaryAnn determine the most effective price for her crepes?
evaluate demand at different price levels
psychological pricing
every hulu price point ends in .99 a great strategy for emotional purchases because it psychologically anchors consumers to the lower initial number
Premium pricing
in late 2018 hulu added live TV to its on demand programming. this offering is at a premium price of 64.99 a month with ads or 70.99 a month without ads
Amy typically uses ________, where a certain amount is added to the cost of a product to determine the price of most items in her store.
markup pricing
Pricing should allow Southfork to make 25 percent profit above total costs for its S-2 tablet
markup pricing
Use the easiest pricing tactic possible to reduce confusion and ensure easy estimates of profits.
markup pricing
All of the following should be considered when setting the final price except
mode of transporting for ingredients
Karen and Anika must identify the fixed costs of running Assist You 2. Those costs could include all of the following except
new client meetings
Pricing should give customers the perception they are getting a bargain.
odd pricing
Pricing should reflect affordability without sacrificing quality; this means rather than setting a price at $200, set it at $199.89.
odd pricing
A new bowling alley, Bowlero, runs a Facebook ad with a coupon offering two free games to anyone who comes into the bowling alley. Bowlero's goal is to build its customer base by reminding people of all ages that bowling is a fun, inexpensive way to pass the time
penetration pricing
To build a clientele, a new nail salon in a suburban strip mall sends out coupons that offer a manicure/pedicure for the low price of $10. Other nail salons in the same town charge $25 for a mani/pedi
penetration pricing
When launching a new line of vitamins and herbal supplements, a company emphasizes the quality of its products while noting that they cost only about half of the price of the vitamins and supplements sold by retailers such as GNC and Target
penetration pricing
For certain products, demand increases as price increases to a point, with lower demand at the highest price and lowest price. This type of curve is known as the
prestige demand curve
Pricing should reflect the fact that the S-2 tablet's packaging has received a makeover; the design is now much sleeker and more streamlined.
prestige pricing
Pricing should reflect the image that Southfork's tablets are of superior quality compared to the competition.
prestige pricing
Pricing should include the costs of the S-2 tablet, S-mini device, and additional software to increase margins on each product.
price bundling
Pricing should reflect combined product offerings and reduce advertising costs for the firm.
price bundling
The marketers of Santé, a health drink, have decided to sell a combination package of three flavors—vanilla, chocolate, and strawberry. This package is priced marginally higher than the individual flavors. Given this information, we can come to the conclusion that the marketers of Santé have applied the _____ strategy.
price bundling
The unethical pricing practice of charging different customers different prices for the same product is known as
price discrimination
Because Steve Jobs (the founder of Apple) has a large and devoted following among digital natives, the publisher of Walter Isaacson's biography of Steve Jobs charged a premium price for a digital version of the biography upon publication
price skimming
Certain video games, such as Mario Brothers and Final Fantasy, have a very large following. New installments of these games are often priced 30 to 40 percent higher than other video games
price skimming
Knowing that dedicated environmentalists are willing to pay more for sustainable products, Volvo decides to charge a high price for its first fully electric automobile.
price skimming
MaryAnn chooses a price, or makes a pricing decision, after establishing and evaluating which important factors?
pricing objectives, demand, costs, and competitive price environment
profits
revenue minus total costs
Frozen Yummy is an ice-cream manufacturer. Its marketing strategy from the month of November to February is "buy one get one free." Which of the following best describes the strategy applied by Frozen Yummy?
seasonal discounts
Pricing should encourage a steady stream of buyers to the store, even after the holiday rush is over.
seasonal discounts
Special pricing should be considered for the summer months when tablet sales typically decline.
seasonal discounts
Karen and Anika must identify the variable costs of running Assist You 2. Those costs could include all of the following except
advertising costs
Which of the following is a product with elastic demand?
airline tickets
The goal of this pricing strategy is to maximize cash flow over the short term and is typically implemented by a struggling firm.
survival pricing
Which of the following has fostered healthy trade relations among the United States, Mexico, and Canada?
the absence of tariffs among the United States, Mexico, and Canada
goldilocks pricing
the goal of a 3 tiered approach is to drive customers to the middle option, the just right hulu (no ads) offering for 11.99 a month. Often users will start with the lowest option, then trade up to no ads, which offers the same programming as the lowest plan but without ads
Penetration pricing
the lowest plan hulu offers starts at 5.99 a month a lower price than market competitors netflix and amazon both at 8.99 a month. Hulu subsidizes this low price by streaming advertisements during its programs
revenue
the result of the price charged to customers multiplied by the number of units sold
When firms offer products and services at a lower price to encourage customers to purchase more, they are implementing a pricing strategy known as
volume maximization
the price setting process
1. Define the pricing objectives 2. Evaluate demand 3. Determine the costs 4. Analyze the competitive price environment 5. Choose a price 6. Monitor and evaluate the effectiveness of the price
elastic demand
A scenario in which demand changes significantly due to a small change in price.
escalator clause
A section in a contract that ensures that providers of goods and services do not encounter unreasonable financial hardship as a result of uncontrollable increases in the costs of or decreases in the availability of something required to deliver products to customers.
inelastic demand
A situation in which a specific change in price causes only a small change in the amount purchased.
price bundling
A strategy in which two or more products are packaged together and sold at a single price.
underpricing
Charging customers less than they are willing to pay.
fixed costs
Costs that remain constant and do not vary based on the number of units produced or sold.
variable costs
Costs that vary depending on the number of units produced or sold.
perceived risk
Customers are less price-sensitive when it is difficult to compare competing products and the cost of not getting the expected benefits of a purchase is high.
importance of end benefit
Customers are less price-sensitive when the product is a small part of the cost of a benefit with high economic or psychological importance.
Price-quality perceptions
Customers are less sensitive to a product's price to the extent that price is a proxy for the likely quality of the purchase.
size of expenditure
Customers are less sensitive to the prices of small expenditures which, in the case of households, are defined relative to income.
reference prices
Customers are more price sensitive the higher the product's price relative to the customers price expectation.
price framing
Customers are more price sensitive when they perceive the price as a "loss" rather than as a forgone "gain." They are more price-sensitive when the price is paid separately rather than as part of a bundle.
perceived fairness
Customers are more sensitive to a product's price when it is outside the range that they perceive as "fair" or "reasonable."
seasonal discounts
Price reductions given to customers purchasing goods or services out of season.
unbundling
Separating out the individual goods, services, or ideas that make up a product and pricing each one individually.
factors influencing price sensitivity
Size of Expenditure Shared Costs Switching Costs Perceived Risk Importance of End-Benefit Price-Quality Perceptions Reference Prices Perceived Fairness Price Framing
tariffs
Taxes on imports and exports between countries.
price fixing
When two or more companies collude to set a product's price.
Karen and Anika run several different pricing scenarios to calculate how much business revenue they need to earn in order to cover all of Assist You 2's expenses. That total calculated revenue is known as the
break even point
Carla, the marketing manager at Regal Inc., is in the process of setting prices. She has finished analyzing the competitive price environment. According to the price-setting process, what should be Carla's immediate next step?
choose a price
Once Karen and Anika identify the fixed and variable costs of their business, they must then determine the number of service sales they need to make in order to produce a profit. They would do this by
conducting a break even analysis
After identifying the demand and determining the costs for producing her crepes, MaryAnn's next step in setting a price is to
consider what her competitors are charging
shared costs
customers are less price sensitive when some or all of the purchase price is paid by others
switching costs
customers are less sensitive to the price of a product if there is added cost (both monetary and nonmonetary) associated wtih switching to a competitor
MaryAnn has just opened a new food-truck business selling homemade crepes. She is confident in the quality of her product and she must now decide on the right price. Should she attract new customers through lower prices or highlight the quality of her products through higher prices? These questions represent which step of the price-setting process?
define pricing objective
6 steps in price setting
define pricing objectives evaluate demand determine the costs analyze the competitive price environment choose a price monitor and evaluate the effectiveness of the price
promotional pricing
hulu and hulu (no ads) offer the first month free, and hulu and live tv offers the first 7 days free. the goal, like any trial promotion is to get viewers hooked on the content and service
Tiered Pricing
hulu offers three tiers of pricing, designed to appeal to different customer segments with different needs and desires
captive pricing
hulu produces exclusive content like the mindy project, marvel's runaways and the handmaid's tale that are only available to hulu subscribers
ads on and bundle pricing
hulu up sells its subscribers with a la carte access to premium channels like HBO, cinemax, showtime, and starz for additional monthly prices
A diabetic person needs daily insulin shots to stay alive
inelastic demand
A remote mountain town in the Pacific Northwest has no public transportation, including no Uber or Lyft drivers. Most people need to drive at least an hour away to their jobs or to the closest food market
inelastic demand
People who live in parts of Minnesota and North Dakota live through winters where the temperature can dip to -20 degrees Fahrenheit, so they need reliable heating systems and fuel
inelastic demand
If Amy wanted to employ a seasonal discount around a holiday, which holiday would be her best option?
july 4th
