Pricing

When companies increase the quality of materials used in the production of their products, their prices will tend to be

Higher. Companies that use high-quality materials in the production of their goods have to pay higher prices for the materials. They will pass these increased costs on to their customers.

Sellers must carefully set prices so that buyers feel they are receiving __________ value for their money.

Optimum. Buyers need to feel that they are getting the most for the money they spend. If they felt that they were receiving minimum, little, or no value for the money spent for products, they would probably spend their money elsewhere in the future.

Can prices be set too low?

Yes; customers may feel quality is too low. Quality and price are often considered the same by customers. Higher priced items are usually perceived as high-quality products. Customers who feel lower prices reflect low quality will not buy more of that product.

Which area of promotion will pricing affect?

Advertising budget. Companies that sell low-priced items will not have as large an advertising budget as companies with higher priced items. Place decisions, including consideration of transportation channels and market location, as well as product decisions, such as selection of production materials, are not areas of promotion.

A station across the street is offering gasoline for five cents cheaper per gallon. The other stations in the area decide to lower their prices as well. This is an example of __________ pricing.

Competitive. Adjusting prices to meet or beat the competition is competitive pricing. Competitive pricing often means being flexible, not inflexible. It also means being realistic (not too low or too high) rather than unrealistic.

A buyer is willing to pay $9.99 for a product. If the seller is willing to accept that amount, then $9.99 is the

Exchange price. The exchange price is the amount that both customers and sellers are willing to accept. Value is the amount of satisfaction a product will provide the customer. Markdowns are reductions in prices used to sell slow-moving or clearance items. Demand is the quantity of a good or service that buyers are ready and willing to buy at a given price at a particular time.

A hair care company cannot afford to spend millions of dollars on research for the new, inexpensive shampoo it is developing, so the company must choose a less expensive form of research. This is an example of how pricing affects which of the following elements of the marketing mix:

Product. Product decisions involve determining what goods, services, or ideas to produce or sell that will satisfy customers' needs and wants. Pricing affects the type of research conducted, the length of the research project, and the amount of money spent on research. If a product is low priced, a company most likely will not be able to afford to spend lots of money on research. This is not an example of how pricing affects promotion or place. Profit is not an element of the marketing mix.

Covering costs is a pricing objective related to

Profitability. Covering costs is a pricing objective related to profitability. Pricing objectives are company goals that influence how marketers make pricing decisions. They may relate to profitability (making as much as possible or simply covering costs), sales (selling as many units as possible or gaining market share), competition, or image/prestige.

To set prices, businesses must price the physical product and all of its associated

Services

In which of the following businesses would a separate department most likely be responsible for establishing prices: Select one: a. Hair salon b. Small boutique c. Chain store d. Local clothing store

Chain store. Large companies usually have departments responsible for the pricing function. The owners of small boutiques, local clothing stores, and hair salons would most likely be in charge of setting prices for their goods and services.

What might happen if a business's customers feel that they are not getting the most value for their money?

Customers spend money elsewhere. If customers feel that a business's goods are overpriced, they will find somewhere else to buy. Sales will not increase, customers will not purchase more, and sales will not remain the same if customers feel that they are not getting the most for their money from a company.

A downturn in the economy has forced a home builder to lower its prices. This company has __________ prices.

Flexible. Economic hardships often force companies to lower prices to sell their products. Realistic prices are often associated with the quality of the product. Competitive pricing occurs when you try to meet or beat your nearest competitor's prices. Inflexible pricing occurs when a company refuses to change its prices to meet customer demand.

In which of the following businesses is the business owner usually responsible for setting prices: Select one: a. Macy's b. Java Joe's Coffee Shop c. Walmart d. Sears

Java Joe's Coffee Shop. In small companies, such as a coffee shop, the owner is more likely to be in charge of pricing. Walmart, Sears, and Macy's are all large companies that have departments responsible for the pricing function.

A company decides to save money by shipping its products by truck instead of by plane. Which marketing mix element is pricing influencing in this example?

Place. Place involves shipping, handling, and storing products and determining when and where they will be available. Pricing affects the choice of transportation channels. There are a variety of ways that companies can ship their products to their final destinations, and some methods are cheaper than others (for example, trucking is usually less expensive than flying). This is not an example of pricing influencing product or promotion. Problem solving is not an element of the marketing mix.

When Mariah sets prices for her company, she strives to maximize profit, which is considered a(n)

Pricing objective. Company goals that influence how marketers make pricing decisions are called pricing objectives. One possible pricing objective is maximizing profit. Advertising goals would influence a company's promotional decisions. Transportation choices are involved with the place decision. Product strategies may involve researching and developing new goods or services.

The determination of an exchange price acceptable to both the buyer and the seller of a product is called

Pricing. Pricing is the determination of an exchange price at which the buyer and seller perceive optimum value for a good or service. Promotion stimulates demand for products by informing customers of the products' availability. Place decision is the marketing element focusing on considerations in getting a selected product in the right place at the right time. Product decision refers to what goods, services, or ideas a business will offer its customers.

A company with a high profit margin decides to advertise with a full-page, high-cost magazine ad. This is an example of how pricing influences

Promotion. Promotion involves the various types of communications that marketers use to inform, persuade, or remind customers of their products. Pricing affects the choice of medium for promotion. Products with very low profit margins are usually promoted in lower priced media, while products that have high profit margins are usually promoted in a combination of media, including high-cost advertising media like magazines. Also, the bigger the advertisement, the higher its cost. This is not an example of pricing influencing place or product. Physical inventory is not an element of the marketing mix.

With what do many customers associate price?

Quality. Quality and price are often considered the same by many customers. Comfort is more often associated with the brand name or quality of the product. Discounts are often offered on slow-moving products, and location affects the number of sales.

Can pricing affect a business's image?

Yes; a business with low prices may have a discount image. When a business consistently uses low prices, it is usually thought of as a discount business. Businesses that carry name brands or luxury items usually charge higher prices and have a prestigious image in the eyes of customers.

Does pricing affect the amount of money a business spends on product research?

Yes; companies will not spend as much money on research for lower priced products. Lower priced products tend to have lower profit margins which do not leave as much money available to spend on research. Products with a high profit margin will typically have more money available to pay for extensive research.