Comm 296 - Pricing Strategy - Part 1 and 2

predatory pricing

firms practice of setting prices super low to drive other businesses out of business. illegal.

inelastic

greater than -1 (price elasticity) - relatively insensitive. small changes in price, small change in demand.

elastic

refers to a market for a product of service that is very price sensitive (less than -1)

Manufacturer's suggested retail price (MSRP)

Price that manufacturers suggest retailers sell their products at.

customer orientation

a company based objective on the premise that the firm should measure itself primarily according to whether it meets its customers needs.

competitor orientation

a company based objective on the premise that the firm should measure itself primarily against the competition.

sales orientation

a company objective based on the believe that increasing sales will help the more than increasing profits.

profit orientation

a company objective that can be implemented by focusing on target profit pricing, maximizing profits, or target return pricing

status quo pricing

a competitor oriented strategy in which a firm changes price only to meet those of competition.

premium pricing

a competitor-based pricing method by which the firm deliberately prices a product above the prices set for competition products to capture those consumers who always shop for the best and price doesn't matter.

bait and switch

a deceptive practice of luring customers into the store with very low price on one advertised item (bait) - only to aggressively pressure them into a higher priced model (the switch) by discouraging the lower priced item.

competitive parity

a firms strategy of setting prices that are similar to those of major competitors

experience curve effect

refers to the drop in unit cost as the accumulated volume sold increases, as sales continue to grow, the costs continue to drop

target return pricing

a pricing strategy implemented by a firm less concerned with the absolute level of profits and more interested in the rate at which their profits are generated relative to their investments; designed to produce a specific return on investment, usually expressed as a percentage of sales.

high/low pricing

a pricing strategy that relies on the promotion of sales, during which prices are temporarily lowered to increase and encourage purchase

everyday low pricing

a strategy companies use to emphasize the continuity of their retail prices somewhere regular, non sale price and the deep discount sale prices their competition might offer.

five c of pricing

competition, costs, company obj, customers, channel members

substitute products

demand neg related - increase in want for A makes decrease for B

grey market

employs irregular but not necessarily illegal methods; generally it legally circumvents authorized channels of distribution to sell goods at prices lower than the manufactures intended price.

contribution per unit

equals the price less the variable cost per unit. variable used to determine the break even point in units.

loss leader pricing

loss leader pricing takes the tactic of leader pricing one step further by lowering the price below the stores cost. used to gain traffic

dynamic pricing

refers to the process of charging different prices for goods or services based on that type of customer, time of day, week, or even season - same as dynamic pricing

price elasticity of demand

measures how changes in price affect the quantity of the product demanded.; specifically the ratio of the percentage change in quantity demanded to the percentage change in price.

horizontal price fixing

occurs when competitors that produce and sell competing products work together to control prices. Effectively taking the price process out of the decision for consumers.

oligopolistic competition

occurs when only a few firms dominate a market.

vertical price fixing

occurs when parties at different levels of the marketing channel (man and ret) collude to control prices.

price war

occurs when two or more firms compete primarily by lowering their prices.

monopolistic competition

occurs where there are many firms that sell closely related but not homogenous products; these products may be substitutes but not perfect substitutes.

monopoly

one firm provides the product or service in a particular industry

complimentary products

products whose demand curves are positively related, such that they rise or fall together; a percentage increase in demand for one results in a percentage increase in demand for the other

what are the 4 pricing orientations

profit orientation, sales orientation, customer orientation, competitor orientation.

maximizing profits

profit strategy - accurately specify a mathematical model that captures all the factors required to explain and predict sales and profits. It should be able to identify what price profits are maximized at.

income effect

refers tho the change in the quantity of the product demanded due to their change in income.

demand cure

shows how many units of a product or service consumers demand during a specific period at different prices.

break even analysis

technique use to examine the relationship among cost, price, revenue, and profit over different levels of production and sales to determine the break even point.

substitution effect

the consumers ability to substitute other products for focal brands, thus increasing the price elasticity for demand.

price

the overall sacrifice a consumer is willing to make, money, time, energy, to acquire a specific product or good

cross price elasticity

the percentage change in demand for a product A that occurs in response to a percentage change in price of product B. - complimentary products

break even point

the point at which the number of units sold generated enough revenue to just equal the total costs; at this point profits are 0

price fixing

the practice of colluding with other firms to control prices.

price discrimination

the practice of selling the same product to different resellers or to the ultimate consumer at different prices; sometimes illegal.

reference price

the price against which buyers compare actual selling price of the product and that facilitates their evaluation process

price skimming

the strategy of selling a new product or service at a high price innovators and early adapters are willing in order to obtain it. after the high price market becomes saturated and sales slow, the firm generally lowers the price to get the next most price sensitive market

total costs

the sum of var and total

fixed costs

those costs that remain essentially at the same level, regardless of any changes in volume of production.

variable costs

those costs, primarily labour and materials, that vary with production volume.

prestige products or services

those that consumers purchase for status rather than functionality