MKTG 321 Chapter 20
Easy to duplicate
A product under nonprice competition would most likely not succeed in the market if
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
Competition
ACE Electronics introduces a new voice-activated personal computer that no longer requires a keyboard. ACE charges the high price of $11,000 per unit, thus generating large profits because it has a 20 percent market share. ACE's major problem in the future will most likely be
Deceptive Pricing
Both the Federal Trade Commission Act and the Wheeler-Lea Act prohibit
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.
Cost of the Product
Customers will consider the price, the amount of time and effort to obtain it and resources required to maintain it.
Receive
Customers will consider the product attributes, benefits, advantages, disadvantages , the probability of using the product and possibly the status associated with it
Price Competition
Emphasizing prices as an issuer and matching or beating competitors price
overhead, advertising, and salaries
Ethan is an operations unit manager for Morningstar Foods. So far in developing his monthly budget, he has identified the following costs: Overhead at $120,000; Packaging at $70,000; Advertising at $60,000; Salaries at $400,000; Food production at $90,000, and Distribution at $22,000. The fixed costs in this situation would be
Resellers
Expect producers to provide several support activities, such as sales training, service, repairs, cooperative advertising and sales promotion.
Oligopolies
Fewer sellers operate and barriers to competitive entry are high Raise prices in the hope that competitors will do the same Very little gained through price cuts in this structure Automotive and Airline Industry
Prestige
French Quarter Inns drops the price of a suite from $225 to $195 per night and experiences a reduction in the quantity of rooms demanded of an average of five per night. This is an indication that suites at this hotel are apparently an example of a(n) ____ product.
Pricing Objectives
Has considerable bearing on the determination of prices. Temporary price reductions in the hope of gaining market share.
Monopolistic Competition
Has numerous sellers with product offerings that are differentiated by physical characteristics, features, quality and brand image. Set different prices than its competitors. Practice non-price competition
Price Discrimination
If a company provides price differentials that harm competition by giving one or more buyers a competitive advantage, it is committing
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.
Price Conscious
Individuals strive to pay low prices. Want lowest prices, even if products are not of the highest quality Example: Amazon, Wal-Mart
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.
Price War
Isabella is a product manager for The Container Store, a retailer of plastic bins and other storage containers. Sales have been declining in the past nine months and her management team is pressuring her to compete based on price discounts. However, Isabella is aware of the dangers associated with engaging in price competition. She knows that competitors can also change prices quickly and aggressively, which can result in a(n) ____ that will be harmful to both companies.
What does the demand curve for a prestige product look like?
It forms a curve where the greatest quantity sold comes at a medium price and the quantities fall as the price increases or decreases.
Noncumulative
Justin, a sales representative for Serta Mattress manufacturers, phones Kirk of Southside Furniture to inform him that if he will increase his recent order of 15 mattress sets to 20, he will receive a 14 percent price reduction. This offer is due to a recent overstock condition at the factory and will not be available in the future. The discount offered here is
Monopoly Regulated
Less pricing flexibility Set prices that generate reasonable but not excessive return
Perfect Competition
Many sellers exists. Buyers view all sellers products at the same. All firms sell their products at the going market prices and buyers will not pay more than that. No flexibility in setting prices Ex: Farming.
Perfect Competition
Marketers have no flexibility in setting prices under conditions of
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.
Other Marketing Mix Variables
Pricing decisions can influence the activities associated with products, distribution, and promotion variables. Price affects demand for that item. Influences the customers overall image of products or brands.
Channel Member expectations
Producer must consider what members of the distribution channel expect. Channel Members expect to receive a profit for the functions it performs. They also expect producers to give discounts for larger orders and prompt payment. Amount depends on what the intermediary could make if it were handling a competing product instead. Also amount of time and resources
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.
Interpretations
Refers to what the price means or what it communicates to customers. High/ low quality, great deal, fair price or rip-off
Response
Refers to whether the price will move customers closer to purchase of the product and the degree to which the price enhances their satisfaction with the purchase experience and with the product after purchase.
Low Prices
Result in low production costs. Poorer product quality
High Prices
Result in low unit sales, which may lead to higher production costs per unit. Better product quality. Purchase products with well-established and recognizable brand names More Personal selling
Marginal
Roberts Electronics calculates that if it produces 15 radar detectors, its costs are $1,500, and if it produces 16 radar detectors, its costs are $1,590. In this instance, $90 is the firm's ____ cost.
Costs
Sell products below cost to match competition, generate cash flow and even increase market share. To maintain market share and revenue many marketers concentrate on reducing costs. i.e. labor saving technologies, focus on quality, and efficient manufacturing processes. Product's cost are a minimum or floor, below which the product cannot be priced
Organizational and Marketing Objectives
Set prices consistent with the organizations goals and mission. Set prices that are reasonable to product quality Pricing decisions should be compatible with the firms marketing objectives.
Monopoly Unregulated
Set whatever prices the market will bear Company can't price the product at the highest possible level to avoid government regulations or penetrate a market by using a lower price.
Rebates
Since Victoria's Secret has decided to use nonprice competition, it distinguishes its brand through all but which of the following?
30
The Highland Racquet Club found that with annual fixed costs of $60,000, its breakeven point is 2,000 members when the membership charge is $60 per person per year. What is the variable cost per person for Highland?
Trade
The Panama Jack Company utilizes a special strategy to sell its ECO-shirt line. Its basic promotional tool is the discount. These discounts offered to middlemen for performing certain channel activities are referred to as ____ discounts.
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.
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
Legal And Regulatory Issues
To curb inflation, the federal government can invoke price controls, freeze prices at certain levels, or determine the rates at which firms may increase prices. regulatory agencies set prices on such products as insurance, dairy products, and liquor A marketer can use price differentials if they do not hinder competition, result from differences in the costs of selling or transportation to various customers, or arise because the firm has had to cut its price to a particular buyer to meet competitors' prices. Airlines
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.
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.
Research and Development Production Distribution
What 3 areas do marketers need to take into account the costs the product shares with others in the product line?
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.
Sales Rebates Special Discounts
What are 3 ways to raise cash quickly in temporary price reduction?
Trade Discounts Quantity Discounts Cash Discounts Seasonal Discounts Allowances
What are 5 types of price discounting?
Actual Full Cost Standard Full Cost Cost plus Investment Market Based Costs
What are the 4 types of transfer pricing?
Organizational and Marketing Objectives Pricing Objectives Costs Other Marketing Mix variables Channel Member expectations Customer interpretations and response Competition Legal and regulatory issues
What are the 8 factors that affect pricing decisions?
Nonelective Surgery
What is most likely to have inelastic demand curve?
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.
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 produce 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.
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
Robinson-Patman Act
has had a particularly strong impact on pricing decisions. For various reasons, marketers may wish to sell the same type of product at different prices.
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.
Federal Trade Commission Act and the Wheeler-Lea Act
prohibit deceptive pricing.
Sherman Antitrust Act
prohibits conspiracies to control prices, and in interpreting the act, courts have ruled that price-fixing among firms in an industry is illegal.
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
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.
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
Distribution
Premium priced: marketed through selective or exclusive distribution. (Cross Pens) Less advertised Lower Priced products: may be sold through intensive distribution.(BIC pens)
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
Government owned Monopoly
Price Products below cost to make them accessible to people who otherwise could not afford them. Charge higher prices to control demand Transit system
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.
Zone Pricing
The fact that a gas station in Texas pays less for fuel than a gas station in Maine from a producer in Louisiana suggests that refineries are using which of the following pricing methods?
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.
Value Conscious
Vanessa is shopping for a new pair of athletic shoes. Since she is concerned about both the price and the quality aspects of a product, Vanessa is most likely a ___ consumer.
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.
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
Zone Pricing
sets uniform prices for each of several major geographic zones; as the transportation costs across zones increase, so do the prices.
Price Discrimination
the practice of employing price differentials that tend to injure competition by giving one or more buyers a competitive advantage over other buyers, is prohibited by law. Operators cite the Robinson-Patman Act as one of the laws violated by their supplier ExxonMobil Corp
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