Chapter 10

cost-plus pricing

adds a standard markup to the cost of the product benefits: sellers are certain about costs price competition is minimized buyers feel it is fair disadvantages: ignores demand and competitor prices

fixed costs

are the costs that do not vary with production or sales level (examples of this are rent, heat, interest, and executive salaries)

total costs

are the sum of the fixed and variable costs for any given level of production

value- added pricing

attaches value- added features and services to differentiate the companies offers and thus their higher prices (don't decrease the cost but additional benefits- example YETI and Oakley)

everyday low pricing (EDLP)

involves charging a constant everyday low price with few or no temporary price discounts volume sell a ton, low prices everyday no coupons (example of this is Walmart and Aldi)

High- Low pricing

involves charging higher prices on an everyday basis but running frequent promotions to lower prices temporarily on selected items (example of this is Macy's and JCPenney's- setting a high prices but giving customers coupons so it makes it seem like they are getting a great deal, etc)

market- penetration pricing

involves setting a low price for a new product in order to attract a large number of buyers and a large market share

price elasticity

is a measure of the sensitivity of demand to changes in price

price discrimination

is allowed if the seller: can prove that costs differ when selling to different retailers manufactures different qualities of the same product for different retailers

good-value pricing

is offering just the right combination of quality and good service at a fair price (** Mercedes car price during the 2008 recession- model of car that was affordable during the time)

break- even pricing (target return pricing)

is setting a price to break even on costs or to make a target return

competition- based pricing

is setting prices based on competitors' strategies, costs, prices, and market offering (example of this is car companies)

Price

is the amount of money charged for a product or service, or the sum of all the values that customers exchange for the benefits of having or using the product or service

retail (or resale) price maintenance

is when a manufacturer requires a dealer to charge a specific retail price for its product, which is prohibited by law

elastic demand

is when demand changes greatly with a small change in price

inelastic demand

is when demand hardly changes with a small change in price

predatory pricing

legislation prohibits selling below cost with the intention of punishing a competitor or gaining higher long-term profits by putting competitors out of business

price fixing

legislation required sellers to set prices without talking to competitors

deceptive pricing

occurs when a seller states prices or price savings that mislead consumers or are not actually available to consumers bogus reference or comparison prices scanner fraud and price confusion

what is an example of an oligopolistic competitor

phone companies or movie producers (only a few key producers)

KNOW THIS FORMULA

Q= FC/(P-UVC)

robinson- patman act

prevents unfair price discrimination by ensuring that the seller offer the same price terms to customers given level of trade

before setting prices what must the marketer understand the relationship between?

price and demand for its products

elastic

price changes in less than the quantity demanded

pricing in different types of markets (four of them)

pure competition monopolistic competition oligopolistic competition pure monopoly

inelastic

quantity demanded changes a little bit compared to price

cost-based pricing

sets prices based on the costs for producing, distributing, and selling the product plus a fair rate of return for effort and risk

demand curve

shows the number of units the market will buy in a given period at different prices demand and price are inversely related higher price= lower demand

target costing

starts with an ideal selling price based on consumer value considerations and then target costs that will ensure that the price is met

marketing- skimming pricing

strategy sets high initial prices to "skim" revenue layers from the market product quality and image must support the price buyers must want the product at the price (example of this is Samsung app about Apple and the iPhone X)

value-based pricing

uses the buyers' perceptions of value rather than the seller's cost customer driven (*most effective satisfies customer and cost right) product driven price is to set to match perceived value

variable costs

vary directly with the level of production (examples of this is raw materials and packaging)

who can influence prices?

who can influence- customers but also anyone.... such as distributors, etc.

who should set prices?

who sets- all different departments work on **sets internally everyone can influence