MKTG ch. 12
discount
A deduction from the price of an item
trade discount
A deduction from the product's list price, given to retailers and wholesalers that buy. This compensates intermediaries for handling functions such as warehousing products.
reference pricing
A firm displays a moderately priced product next to a higher-priced product
multiple unit pricing
A firm sells two or more identical products for a single price
Price elasticity of demand
A measure of the sensitivity of demand to changes in price
cash discount
A price deduction for business buyers that pay promptly.
quantity discount
A price deduction for business buyers that purchase in large quantities. This encourages larger orders.
seasonal discount
A price deduction for buyers that buy when a product is not in season. This stimulates sales during off-peak periods.
Allowance
A price reduction to achieve a specific objective, such as encouraging buyers to trade in old equipment when buying new equipment. This encourages new purchases.
cost-based pricing
Adding a dollar amount or a percentage of the cost to the cost of the product to establish the price
cost-plus pricing
Adding a percentage of the manufacturer's total cost to that total cost to establish the price of a custom-made product
markup pricing
Adding to the cost of the product a predetermined percentage of that cost
Special-event pricing
Advertised sales or price cutting linked to a holiday, season, or event
status qou pricing objective
An objective to maintain the organization's current situation, such as holding its current market share or matching the prices of rivals.
Differential pricing
Charging different prices to different buyers for the same quality and quantity of product
Price skimming
Charging the highest possible price that buyers who most desire the product will pay
Fixed costs
Costs that do not vary with changes in the number of units produced or sold
Variable costs
Costs that vary directly with changes in the number of units produced or sold
What happens in a normal demand curve, where there is an inverse relationship between price and quantity? The price goes up as demand goes up. Demand goes down as the price goes down. Demand goes up as the price goes down. The price goes down as demand goes up.
Demand goes up as the price goes down.
Which one of the following types of products is not subject to inelastic demand? Dining room furniture Electricity Gasoline Status-symbol cars
Dining room furniture
nonprice competition
Emphasizing factors other than price to distinguish a product from competing brands
Price competition
Emphasizing price as an issue and matching or beating competitors' prices
Which of the following are advantages of penetration pricing? (Select two) Helps recover high research and development costs more quickly Encourages customers to try the new product Holds down demand when the firm has limited production capability at the introduction Helps increase sales volume, which leads to production economies of scale Allows more flexibility in making price changes
Encourages customers to try the new product Helps increase sales volume, which leads to production economies of scale
Negotiated pricing
Establishing a final price through bargaining between seller and customer
pricing objectives
Goals that describe what a firm wants to achieve through pricing
To more accurately gauge the target market's evaluation of price, firms should look at which of these? (Select three)
How much value customers expect from a product What product quality customers expect The importance customers place on a product
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
If a firm sells a prestige product, what kind of relationship between price and quantity demanded should it expect? It should expect to sell more at higher prices, up to a point. It should expect to sell more at ever-higher prices. It should expect to sell more when it lowers the price. It should expect to sell less at ever-higher prices.
It should expect to sell more at higher prices, up to a point.
What happens when the firm achieves the breakeven point?
It will make money on each unit sold after that point.
Bundle pricing
Packaging together two or more complementary products and selling them for a single price
bundle pricing
Packaging two complementary products together for a single price
profit pricing objective
Price levels set by senior decision makers, expressed in terms of a percentage of sales revenues or specific dollar figures.
When a company sets a high price for the introduction of a new product, it is using which type of pricing? Price skimming Differential pricing Demand-based pricing Penetration pricing
Price skimming
transfer pricing
Prices charged in sales between an organization's units
Reference pricing
Pricing a product at a moderate level and positioning it next to a more expensive model or brand
demand-based pricing
Pricing based on the level of demand for the product
competition-based pricing
Pricing influenced primarily by competitor's prices
customary pricing
Pricing items on the basis of tradition
customary pricing
Pricing on the basis of tradition
everyday low pricing (EDLP)
Pricing products low consistently
captive pricing
Pricing the basic product in a product line low, but pricing related items at a higher level
Premium pricing
Pricing the highest-quality or most versatile products higher than other models in the product line
price leaders
Products priced below the usual markup, near cost, or below cost
Several factors affect the importance of price, including the type of product, the target market itself, and the purchase situation:(3)
Purchase situation: Buyers are willing to pay higher prices for snacks purchased in the movie theater than they would in other circumstances.
odd number pricing
Puts certain numbers at the end of a price to focus attention on the dollar amount and enhance the perception of the price or product
Geographic pricing
Reductions for transportation and other costs related to the physical distance between buyer and seller
When a firm sets one price in its home market and a different, higher price in a higher-cost market far away, it is using which type of pricing?
Secondary-market pricing
everyday low prices (EDLPs)
Setting a low price for products on a consistent basis
Comparison discounting
Setting a price at a specific level and comparing it with a higher price
market share pricing objective
Setting a target for maintaining or building market share. Firms calculate a product's market share by looking at the sales of its product relative to overall industry sales. Because high market share can mean high profits, many firms strive to increase market share.
Secondary-market pricing
Setting one price for the primary target market and a different price for another market
penetration pricing
Setting prices below those of competing brands to penetrate a market and gain a significant market share quickly
survival pricing objective
Setting prices low to attract more sales. At times, the firm may even be willing to lose money temporarily in order to stimulate customer purchasing.
cash flow pricing objective
Setting prices to quickly recover cash. This objective is sometimes used to bring in capital spent in developing a new product.
Psychological pricing
Strategies that encourage purchases based on consumers' emotional responses, rather than on economically rational ones
Several factors affect the importance of price, including the type of product, the target market itself, and the purchase situation:(2)
Target market: In some cases, different customers within a market pay different prices for some goods and services, such as adults paying higher prices for meals and movie tickets.
Periodic discounting
Temporary reduction of prices on a patterned or systematic basis
random discounting
Temporary reduction of prices on an unsystematic basis
Marginal cost (MC)
The extra cost incurred by producing one more unit of a product
Average fixed cost
The fixed cost per unit produced
breakeven point
The point at which the costs of producing a product equal the revenue made from selling the product
Price lining
The strategy of selling goods only at certain predetermined prices that reflect definite price breaks
multiple-unit pricing
The strategy of setting a single price for two or more units
Odd-number pricing
The strategy of setting prices using odd numbers that are slightly below whole-dollar amounts
Total cost
The sum of average fixed and average variable costs, times the quantity produced
average total cost
The sum of the average fixed cost and the average variable cost
Average variable cost
The variable cost per unit produced
seasonal
To allow a marketer to use resources more efficiently by stimulating sales during off-peak periods
trade
To attract and keep effective resellers by compensating them for performing certain functions, such as transportation, warehousing, selling, and providing credit
quantity
To encourage customers to buy large quantities when making purchases and, in the case of cumulative discounts, to encourage customer loyalty
cash
To reduce expenses associated with accounts receivable and collection by encouraging prompt payment of accounts
In a competitive marketplace, why would a firm price its product slightly higher than those of its rivals? To increase market share To send a signal of high quality To deliver revenue in the long term To achieve a certain markup
To send a signal of high quality
Which of the following are types of pricing used in business markets? (Select three)
Trade discounts Transfer pricing Geographic pricing
Several factors affect the importance of price, including the type of product, the target market itself, and the purchase situation:(1)
Type of product: Buyers are more sensitive to prices of products bought more regularly, such as gasoline, but less sensitive to prices of products bought less frequently, such as luggage.
return on investment pricing objective
Using price to achieve a certain rate of return, or profitable gain, on the organization's investment.
first step in setting prices?
developing pricing objectives
To use price competition most effectively, an organization should focus on _______ and _______. (Select two)
keeping its costs low responding to rivals' price changes
With demand-based pricing, a company will typically set a _______ price during slow periods to boost demand.
lower
The change in total revenue resulting from the sale of an additional unit of a product
marginal revenue
When the buyer pays for delivery of a business product, the price as quoted as F.O.B. , but when the seller pays for delivery the price is quoted as F.O.B.
origin, distination
A business must decide whether it will use _____ competition only or ____ competition before setting a price for its product.
price, nonprice
The next step in the pricing process is to understand
prices of competing products.
Assessing how customers in the target market evaluate price is the _______ stage in the pricing process.
second
The third stage in the pricing process is to understand the
the relationship between a product's price and the quantity demanded by customers.
Once pricing objectives have been established, the second stage in the pricing process is to
understand how customers in the target market evaluate prices.
Costs that change with the level of production, such as raw materials costs, are referred to as
variable costs