Marketing Exam 3

Markup pricing; compute markup; compute markup percentages at cost and selling price

Adding a predetermined percentage of the cost to the price of the product. Most popular method used by wholesalers and retailers to establish a selling price, do not directly analyze the costs of production. Markup can be stated as a percentage of cost of making the product or a percentage of selling price

Demand-Based Pricing

Based on level of demand for the product Customers pay a higher price when demand for the product is strong and a lower price when demand is weak

price skimming

Charging the highest possible price that buyers who most desire the product will pay Usually at beginning of a product's life Product's quality and image must support higher price Little or no competition Quickly recover R & D costs Maximize revenue before competitors enter Control demand in introductory stage of PLC Costs of producing smaller volume cannot be so high that cancels advantage of charging more Attracts competition

What is price elasticity of demand; how do you compute it; how do you interpret it

Consumers' responsiveness or sensitivity to changes in price; measure of the sensitivity of demand to changes in price. Elasticity = %Change in Quantity/Change in Price

How are cumulative and non-cumulative quantity discounts computed

Cumulative- which are quantity discounts aggregated over a stated time period; reduce prices in amounts determined by purchases over stated time periods Non-cumulative discounts- which are one-time reductions in prices based on the number of units purchased, the dollar value of the order, or the product mix purchased; provide one-time reductions in the list price; based on size of single order

What are quantity discounts--types

Deductions from the list price for purchasing in large quantities Cumulative / Non-cumulative discounts

What is the relationship between demand and price?

Demand refers to how much of a product or service is desired by buyers. The quantity demanded is the amount of a product people are willing to buy at a certain price; the relationship between price and quantity demanded is known as the demand relationship.

Odd/even pricing

Ending the price with certain numbers to influence buyers' perceptions of the price or product i.e. $1.99 (odd) vs $2.00 (even)

Cost plus pricing

Is used when production costs are difficult to predict Determine the seller's cost and add a specified dollar amount to it (Selling Price = Cost + Markup)

What is break-even analysis/compute breakeven point in units and revenue

Knowing the number of units necessary to break-even is important in setting the price UNITS: Total Fixed Cost ÷ Per Unit Contribution to Fixed Costs or Total Fixed Costs ÷ Price - Variable Costs DOLLARS: Breakeven Units × Selling Price Dollars

Bundle pricing

Packaging together two or more complementary products and selling them at a single price

Multiple-unit pricing

Packaging together two or more identical products and selling them at a single price Offering a lower price per unit for the purchase of two or more products of the same type when bought together than when units are bought singly.

What is price

Price - The value paid for a product in a marketing exchange; that which is given up in an exchange to acquire an offering (good/service)

Reference pricing

Pricing a product at a moderate level and displaying it next to a more expensive model or a brand that has a higher reference price Reference price - the price consumers expect to pay for many of the products they purchase.

Bait pricing

Pricing an item in a product line low with the intention of selling a higher-priced item in the line Once the customer comes into the store to inquire about the advertised price (the "bait"), the advertiser will attempt to sell the customer a more expensive product (the "switch").

Customary pricing

Pricing certain goods on the basis of tradition Customary pricing is generally used for products with a relatively long market history of being sold for a particular amount, and is driven by intuitive notions of value on the part of buyers.

Captive pricing

Pricing the basic product in a product line low, while pricing related items higher Razors ---- razor blade cartridges Video Game Consoles ------ video games etc.

Price leader pricing

Products priced below the usual markup, near cost, or below cost (real bargains to get customers into retail stores)

How do you compute revenue?

Revenue = Units Sold x Sales Price or Total Costs + Profit

Price lining

Setting a limited number of prices for selected groups or lines of merchandise Provides the different ranges necessary to satisfy each segment of the market. Shoppers can choose desired price ranges and then concentrate on other product variables, such as colors, styles, and materials Example: Price lines for Cameras Stripped down model ($100 or less) Better quality, moderately priced ($200) Professional quality with multiple lenses ($1000+)

prestige pricing

Setting prices at an artificially high level to convey prestige or a quality image. Some target customers want the best, so they will buy at a high price. If price seems cheap, customers worry about quality and don't buy Most common for luxury products such as furs, jewelry, and perfume

penetration pricing

Setting the price below those of competing brands to penetrate a market and gain a significant market share quickly

What is price equilibrium

The price at which demand and supply are equal.

Uniform geographic pricing/zone pricing/freight absorption

Uniform Geographic Pricing- charging all customers the same price, regardless of geographic location Zone pricing - is pricing based on transportation costs within major geographic zones Freight absorption pricing - is absorption of all or part of actual freight costs by the seller

What is fixed cost?

costs that do not vary with changes in the number of units produced or sold (EX. rent, interest, depreciation, clerical and management salaries)

What is variable cost?

costs that vary directly with changes in the number of units produced or sold; include costs related to the direct production of the product such as cost of goods sold and many of the marketing costs associated with selling it.

What are cash discounts; how are they computed and what do the terms mean

price reduction given to buyers for prompt payment or cash payment of a bill

What is geographic pricing; difference between F.O.B. factory and F.O.B. destination

reductions for transportation and other costs related to the physical distance between buyer and F.O.B. factory/origin - is the price of merchandise at the factory before shipment (paid by purchaser); ownership transfers as soon as product leaves factory F.O.B. destination - is a price indicating the producer is absorbing shipping costs (paid by shipper)

Total cost/Total cost per unit

the sum of average fixed and average variable costs times the quantity produced