MKTG 321 Chapter 20

Price Conscious

Individuals strive to pay low prices. Want lowest prices, even if products are not of the highest quality Example: Amazon, Wal-Mart

Cash

To reduce expenses associated with accounts receivable and collection by encouraging prompt payment of accounts Price reduction, is given to a buyer for prompt payment or cash payment. Accounts receivable are an expense and a collection problem for many organizations. A policy to encourage prompt payment is a popular practice and sometimes a major concern in setting prices.

Cumulative Discounts NonCumulative Discounts

What are 2 types of quantity discounts?

Value-Conscious Price Conscious Prestige Sensitive

What are 3 characteristics that marketers are able to set pricing objectives and policies based on the buyer.

Freight Absorption Pricing

When the seller absorbs all or part of the actual freight costs. The seller might choose this method because it wishes to do business with a particular customer or to get more business; more business will cause the average cost to fall and counterbalance the extra freight cost. This strategy is used to improve market penetration and retain a hold in an increasingly competitive market.

elastic

a change in price causes an opposite change in total revenue: an increase in price will decrease total revenue, and a decrease in price will increase total revenue

Cumulative Discounts

are quantity discounts aggregated over a stated time period. Such discounts are intended to reflect economies in selling and encourage the buyer to purchase from one seller.

Marginal Analysis

examines what happens to a firm's costs and revenues when production (or sales volume) changes by one unit. Both production costs and revenues must be evaluated.

Zone Pricing

sets uniform prices for each of several major geographic zones; as the transportation costs across zones increase, so do the prices.

trade (functional) discount.

A reduction off the list price given by a producer to an intermediary for performing certain functions. Usually stated in terms of a percentage or series of percentages off the list price. Intermediaries are given this as compensation for performing various functions, such as selling, transporting, storing, final processing, and perhaps providing credit services. To attract and keep effective resellers by compensating them for performing certain functions, such as transportation, warehousing, selling, and providing credit

Seasonal

Allow a marketer to use resources more efficiently by stimulating sales during off-peak periods. A price reduction to buyers that purchase goods or services out of season. These discounts let the seller maintain steadier production during the year.

NonCumulative Discounts

Are one-time reductions in prices based on the number of units purchased, the dollar value of the order, or the product mix purchased. should reflect some economies in selling or trade functions.

Prestige Sensitive

Buyers focus on purchasing products that signify prominence and status. Ex: Tiffany and Co Some customers "trade up" to higher status products in categories like automobile, home appliance and restaurants.

Value Conscious

Consumers are concerned about both price and quality of a product. Recession: Value and price conscious and limit discretionary spending. Economic savings and additional gains

Price Competition

Emphasizing prices as an issuer and matching or beating competitors price

Allowance

In the case of a trade-in allowance, to assist the buyer in making the purchase and potentially earning a profit on the resale of used equipment; in the case of a promotional allowance, to ensure that dealers participate in advertising and sales support programs. a concession in price to achieve a desired goal. help make the buyer better able to make the new purchase.

Geographic Pricing

Involves reductions for transportation costs or other costs associated with the physical distance between buyer and seller. Prices may be quoted as F.O.B. (free-onboard) factory or destination.

Transfer Pricing

Occurs when one unit in an organization sells a product to another unit. Depends on the company's management strategy and the nature of the units' interaction. Fair to all units involved in the transactions.

Internal Reference Price

Price Developed in the buyers mind through experience with the product. Reflects a belief that a product should cost approx. a certain amount. What they think the product "ought to cost" Include less confident customers with higher price

FOB destination

Price means the producer absorbs the costs of shipping the merchandise to the customer. This policy may be used to attract distant customers.

External Reference Price

Product categories with which we have less experience, we rely more on this. A comparison price provided by others, such as retailers or manufactures.

Marginal Revenue

The change in totally revenue that occurs when a firm sells an additional unit of a product

Break-Even Point

The point at which the costs of producing a product equal the revenue made from selling the product. Knowing the number of units necessary to break even is important in setting the price. Marketer should determine for each several alternative prices. Will identity highly undesirable price alternatives that should definitely be avoided. Simple and strait forward Does assume that the quantity demanded is basically fixed (inelastic) and that the major task in setting prices is to recover costs. Determines whether a product will achieve at least break-even volume.

Price

The value paid for product in a marketing exchange. key element in the marketing mix, because it relates directly to generation of total revenue. Only variable in the marketing mix that can be adjusted quickly and easily to respond to changes in the external environment.

uniform geographic pricing "postage-stamp pricing"

To avoid the problems involved in charging different prices to each customer. The same price is charged to all customers regardless of geographic location, and the price is based on average shipping costs for all customers. Paper products and office equipment

Quantity

To encourage customers to buy large quantities when making purchases and, in the case of cumulative discounts, to encourage customer loyalty. Deductions from list price that reflect the economies of purchasing in large quantities Used in many industries and pass on to the buyer cost savings gained through economies of scale.

Inelastic

demand results in a change in the same direction as total revenue: an increase in price will increase total revenue, and a decrease in price will decrease total revenue.

Fixed Costs

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

Base-Point Pricing

is a geographic pricing policy that includes the price at the factory, plus freight charges from the base point nearest the buyer. This approach to pricing has virtually been abandoned because of its questionable legal status.

Demand Curve

is a graph of the quantity of products expected to be sold at various prices if other factors remain constant.

Marginal Costs

is the extra cost a firm incurs when it produces one more unit of a product.

Average fixed cost

is the fixed cost per unit produced and is calculated by dividing fixed costs by the number of units produced.

Total cost

is the sum of average fixed costs and average variable costs times the quantity produced

Average Total Costs

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

Nonprice competition

occurs when a seller decides not to focus on price and instead emphasizes distinctive product features, service, product quality, promotion, packaging, or other factors to distinguish its product from competing brands. increase its brand's unit sales through means other than changing the brand's price. Establishing brand loyalty by using nonprice competition works best when the product can be physically differentiated and the customer can recognize these differences.

F.O.B. (free-onboard) factory

price indicates the price of the merchandise at the factory, before it is loaded onto the carrier, and thus excludes transportation costs. The buyer must pay for shipping.

Price elasticity of demand

provides a measure of the sensitivity of demand to changes in price. It is formally defined as the percentage change in quantity demanded relative to a given percentage change in price

Barter

the trading of products is the older form of exchange

Average variable cost

the variable cost per unit produced, is calculated by dividing the variable costs by the number of units produced.

Variable Costs

vary directly with changes in the number of units produced or sold. usually constant per unit; that is, twice as many workers and twice as much material produce twice as many cans of paint