MKTG 3600 chapter 11

Price elacticity of demand

% change in quantity demanded / % change in price

penetration pricing

Setting a low initial price on a new product to appeal immediately to the mass market

value

The ratio of perceived benefits to price

Factors that limit the range of prices a firm may set are known as pricing ______.

constraints

Pricing ________ involve specifying the role of price in an organization's marketing and strategic plans.

objectives

Price Equation

Profit = Total Revenue - Total Cost or Profit =(P x Q) - [FC + (UVC X Q)]

Profit Equation

Profit = Total revenue − Total cost; or Profit = (Unit price × Quantity sold) − (Fixed cost + Variable cost).

A frequently used demand-oriented pricing practice is ______

bundle pricing

Cost-plus pricing

involves summing the total unit cost of providing a product or service and adding a specific amount to the cost to arrive at a price

A one-price policy, also called fixed pricing

is setting one price for all buyers of a product or service

Pricing objectives involves specifying the role of price in what two areas of an organization?

its marketing plans and its strategic plans

A demand curve is derived by measuring how many units of a product are sold at various ______.

levels of price

final price equation

list price - allowances + extra fees

A ________ policy is also known as fixed pricing.

one price

Value is defined as ______

perceived benefits divided by price

Insurance premiums, entrance fees, train fares, and organization dues are all examples of _____

price

Reductions in unit costs for a larger order are known as______discounts.

quantity or bulk

Allowances

reductions from list or quoted prices to buyers for performing some activity

A firm that sets an annual target of a specific dollar volume of profit is using a ______

target profit pricing approach

bundle pricing

the marketing of two or more products in a single package price

cost-plus percentage-of-cost pricing

a fixed percentage is added to the total unit cost

demand curve

a graph that relates the quantity sold and price, showing the maximum number of units that will be sold at a given price

Seasonal discounts

encourage buyers to stock inventory earlier than their normal demand would require, manufacturers often use seasonal discounts

Pricing objectives

involve specifying the role of price in an organization's marketing and strategic plans

Marketing managers may identify profit, market share, social responsibility, or even survival as pricing ______.

objectives

Which of the following are reductions in unit costs for a large order?

quantity discounts

total revenue (TR)

the total money received from the sale of a product. Total revenue (TR) equals the unit price (P) times the quantity sold (Q)

Break-even analysis analyzes the relationship between which two at various levels of output?

total cost and total revenue

Profit = (____ x quantity sold) - (fixed cost + variable cost)

unit price

The ratio of perceived benefits to price is a product's ______

value

total revenue

Price x Quantity

Break-even analysis analyzes the relationship between total revenue and total cost to determine profitability ______.

at various levels of output

This practice of exchanging products and services for other products and services rather than for money is called_____

barter

Wilkinson Sword exchanged some of its knives for advertising used to promote its razor blades. This is an example of

barter

Small changes in price ______

can have comparably big effects on company profit

If firms set prices with specific consideration of firms challenging them directly for customers, they have adopted a ________ approach to pricing.

competition-oriented

Legal and regulatory issues and consumer demand are pricing ________ that limit what a company can charge for its products.

constraints

To increase value the most, marketers should

decrease price and increase benefits.

The chart that shows how many units of a product or service consumers will demand during a specific period of time at different prices is known as the ______.

demand curve

Quantity discounts

encourage customers to buy larger quantities of a product, firms at all levels in the channel of distribution offer quantity discounts, which are reductions in unit costs for a larger order

Cash discounts

encourage retailers to pay their bills quickly, manufacturers offer them cash discounts

standard markup pricing

entails adding a fixed percentage to the cost of all items in a specific product class

Demand-oriented pricing approaches weigh which factors most heavily?

expected customer tastes and preferences

______cost is the sum of the expenses of the firm that are stable and do not change with the quantity of a product that is produced and sold.

fixed

total cost (TC)

he sum of their fixed costs and variable costs—to exceed their total revenue over an extended period of time

Prestige pricing

involves setting a high price so that quality- or status-conscious consumers will be attracted to the product and buy it

a dynamic price policy, or flexible-price policy

involves setting different prices for products and services depending on individual buyers and purchase situations in light of demand, cost, and competitive factors

price (P)

is the money or other considerations (including other products and services) exchanged for the ownership or use of a product or service

cost-plus fixed-fee pricing

means that a supplier is reimbursed for all costs, regardless of what they turn out to be, but is allowed only a fixed fee as profit that is independent of the final cost of the project

Setting a price with no variation for product buyers is called a ________ policy.

one-price

Value equals

perceived benefits/price

Deceptive pricing

price deals that mislead consumers

The percentage change in quantity demanded relative to a percentage change in price is known as ______.

price elasticity of demand

By focusing on target profit pricing or target return pricing, a firm is using a ________ pricing approach.

profit-oriented

Penetration pricing is considered to be a ________ approach to pricing.

profit-oriented

Trade (functional) discounts

reward wholesalers and retailers for marketing functions they will perform in the future, a manufacturer often gives trade, or functional, discounts

skimming pricing

setting the highest initial price that customers who really desire the product are willing to pay

A reference value involves comparing the costs and benefits of

substitute items

Unit price times quantity sold is ______.

total revenue

According to the profit equation, profit is ______

total revenue minus total cost

Which of these is an example of a price? a) operating costs b) brand equity c) liquidity d) value e) fare

value

Many cosmetology schools allow their advanced students to style hair for "real-world" clients for a reduced fee. The students benefit from the experience, the clients get a less expensive haircut, and the school provides students with additional training while generating revenue as well. The haircut pricing is an example of

value pricing

Four common approaches to helping find this approximate price level are _____

(1) demand-oriented, (2) cost-oriented, (3) profit-oriented, and (4) competition-oriented

Skimming pricing is an effective strategy when ______

(1) enough prospective customers are willing to buy the product immediately at the high initial price to make these sales profitable (2) the high initial price will not attract competitors (3) lowering price has only a minor effect on increasing the sales volume and reducing the unit costs (4) customers interpret the high price as signifying high quality

The conditions favoring penetration pricing are _______

(1) many segments of the market are price sensitive (2) a low initial price discourages competitors from entering the market (3) unit production and marketing costs fall dramatically as production volumes increase

What factors must be taken into consideration to determine the "right" price for a product? (Select all that apply) a) Will it generate enough sales dollars to pay for the marketing of the product? b) Will the product provide a profit for the company? c) What are customers willing to pay for the product? d) Will the product produce more money than competitors' products? e) What costs can we eliminate in order to make more money on the product? f) Will enough money be made to pay for the development and production of the product?

A, B, C, and F

Target return-on-investment pricing

a method of setting prices to achieve this target

Break-even analysis

a technique that analyzes the relationship between total revenue and total cost to determine profitability at various levels of output

A one-price policy means there is one price for ______.

all buyers of the product

Demand-oriented, cost-oriented, profit-oriented, and competition-oriented are four approaches used to set ______.

approximate price levels

Four approaches used to set ______ are oriented around demand, cost, profit, and competition.

approximate price levels

Select all of the following that are common approaches to setting an approximate price level for a product. a) competition-oriented b) cost-oriented c) service-oriented d) demand-oriented

competition-oriented, cost-oriented, and demand-oriented

Common approaches to pricing are oriented around which four elements?

cost, profit, demand, and competition

Pricing approaches that consider the production and marketing costs and then add enough to cover direct expenses, overhead, and profit are known as ______ approaches.

cost-oriented

Organizations choosing competitor-oriented approaches to set prices might use which two pricing strategies?

customary pricing and loss-leader pricing

________-oriented approaches to pricing regard expected customer tastes and preferences as the most important factors in the decision.

demand

A demand curve enables a firm to examine prices ______.

in terms of quantity sold

odd-even pricing

involves setting prices a few dollars or cents under an even number

A marketing manager considers pricing objectives and constraints to ______.

narrow the range of choices among the variety of pricing strategies

Pricing ________ frequently reflect corporate goals, while pricing ________ often relate to conditions existing in the marketplace.

objectives; constraints

Bait and switch

occurs when a firm offers a very low price on a product (the bait) to attract customers to a store. Once in the store, the customer is persuaded to purchase a higher-priced item (the switch) using a variety of tricks, including (1) degrading the promoted item and (2) not having the promised item in stock or refusing to take orders for it

The money or other consideration (including other products and services) exchanged for the ownership or use of a product is known as ______

price

The money or other considerations exchanged for the ownership or use of a product or service is its _______

price

Factors that limit the range of prices a firm may set are ______

pricing constraints

Cost-oriented approaches to pricing consider which three things in the setting of a product's price?

profit, production costs, and overhead

Price elasticity of demand is expressed as percentage change in ________ divided by the percentage change in ________.

quantity demanded; price

Customers are encouraged to buy a larger number of a single product when a firm offers ______.

quantity discounts

Discounts

reductions from list price that a seller gives a buyer as a reward for some activity of the buyer that is favorable to the seller

Fixed costs ______.

remain at the same level despite changes in production

Total ______ is equal to the unit price for a product times the quantity of it sold.

revenue

Which two are profit-oriented approaches to setting a price?

target return pricing and target profit pricing

price elasticity of demand

the percentage change in quantity demanded relative to a percentage change in price. Price elasticity of demand (E) is expressed as follows

Predatory pricing

the practice of charging a very low price for a product with the intent of driving competitors out of business or out of a market

Price discrimination

the practice of charging different prices to different buyers for goods of like grade and quality

value pricing

the practice of simultaneously increasing product and service benefits while maintaining or decreasing price

Fixed Cost (FC)

the sum of the expenses of the firm that are stable and do not change with the quantity of a product that is produced and sold