Chapter 11

By-product pricing

(think trash into cash) sets a price for by-products in order to make the main product's price more competitive.

Pricing strategies tend to change and evolve as the average product passes through its life cycle: T/F

True

FOB-origin (free on board) pricing

goods are placed free on board a carrier; the customer pays the freight from the factory to the destination. Supporters feel that this is the fairest way to assess freight charges. The disadvantage, however, is that the company will be a high-cost firm to distant customers.

Discounts

include cash discounts for paying promptly, quantity discounts for buying in large volume, or functional (trade) discounts for selling, storing, distribution, and record keeping.

Allowances

include trade-in allowances for turning in old items when buying new ones and promotional allowances to reward dealers for participating in advertising or sales support programs.

Dynamic pricing

involves adjusting prices continually to meet the characteristics and needs of individual customers and situations.

Uniform-delivered pricing

is the opposite of FOB pricing. Here, the company charges the same price plus freight to all customers, regardless of their location.

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 requires sellers to set prices without talking to competitors.

Companies that set a low price for a new product in order to attract a large number of buyers in a large market share are using the ____ strategy.

market penetration

Which of the following product mix pricing strategies involves pricing products that can only be used with the main product?

Captive product pricing

Price increases occur due to:

Cost inflation, Increased demand, Lack of supply

Price cuts occur due to:

Excess capacity, Increased market share

Which of the following product mix pricing strategies involves pricing additional or accessory products sold along with the main product?

Optional product pricing

Which of the following product mix pricing strategies involve setting prices across an entire product range based on cost differences between the products and customer evaluations of different features and competitors prices?

Product line pricing

location-based pricing

a company charges different prices for different locations, even though the cost of offering each location is the same.

time-based pricing

a firm varies its price by the season, the month, the day, and even the hour.

Basing-point pricing

a seller selects a given city as a "basing point" and charges all customers the freight cost from that city to the customer.

Zone pricing

a strategy in which the company sets up two or more zones where customers within a given zone pay the same price.

Using _____ pricing, companies are able to turn their trash into cash allowing them to make the price of their new product more competitive.

bi-product

Product bundle pricing

combines several products at a reduced price.

segmented pricing

companies will often adjust their basic prices to allow for differences in customers, products, and locations.

Market skimming pricing strategy should not be used for a new product if ____.

competitors can undercut prices easily

Psychological pricing

consumers usually perceive higher-priced products as having higher quality. the price is used to say something about the product.

customer-segment pricing

different customers pay different prices for the same product or service.

product-form pricing

different versions of the product are priced differently

Companies facing the challenge of setting prices for the first time can choose between two broad strategies:

market-skimming pricing and market-penetration pricing.

Deceptive pricing

occurs when a seller states prices or price savings that mislead consumers or are not actually available to consumers.

Robinson-Patman Act

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

Reference prices

prices that buyers carry in their minds and refer to when they look at a given product.

Captive product pricing

sets prices of products that must be used along with the main product.

Market-penetration pricing

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

Market-skimming pricing (price skimming)

strategy sets high initial prices to "skim" revenue layers from the market.

Optional product pricing

takes into account optional or accessory products along with the main product.

Product line pricing

takes into account the cost differences between products in the line, customer evaluations of their features, and competitors' prices.

Promotional pricing

temporarily pricing products below the list price, and sometimes even below cost, to increase short-run sales.

In the case of services, captive product pricing is called _____ pricing?

two part (products bundled)