11 MKC1 CH-15 Price, the Only Revenue Generator

What is competitive pricing strategy?

"These organizations try to reduce the emphasis on price competition by matching other firms' prices and concentrating their own marketing efforts on the product, distribution, and promotion elements of the marketing mix.

What is Payment pricing?

A company might advertise a price such as $25*, but when you read the fine print, the price is really five payments of $25 for a total cost of $125. Payment pricing, or allowing customers to pay for products in installments, is a strategy that helps customers break up their payments into smaller amounts, which can make them more inclined to buy higher-priced products.

What is Bait and switch?

Bait and switch, or bait advertising, occurs when a business tries to "bait," or lure in, customers with an incredibly low-priced product. Once customers take the bait, sales personnel attempt to sell them more expensive products. Sometimes the customers are told the cheaper product is no longer available.

What is unfair trade laws ?

By requiring sellers to keep a minimum price level for similar products, unfair trade laws protect smaller businesses. Unfair trade laws are state laws preventing large businesses from selling products below cost (as loss leaders) to attract customers to the store.

What is Captive pricing ?

Captive pricing is a strategy firms use when consumers must buy a given product because they are at a certain event or location or they need a particular product because no substitutes will work. Concessions at a sporting event or a movie provide examples of how captive pricing is used.

What is FOB (free on board) destination ?

FOB (free on board) destination means the title changes at the destination—that is, after the product is transported—and the seller pays the shipping charges.

What is FOB (free on board) origin ?

FOB (free on board) origin means the title changes at the origin—that is, when the product is purchased—and the buyer pays the shipping charges.

What is Fixed costs?

Fixed costs, or overhead expenses, are costs that a company must pay regardless of its level of production or level of sales. A company's fixed costs include items such as rent, leasing fees for equipment, contracted advertising costs, and insurance.

What is Going-rate pricing?

Going-rate pricing occurs when buyers pay the same price regardless of where they buy the product or from whom. Going-rate pricing is often used on commodity products such as wheat, gold, or silver.

What is pricing objectives?

In other words, what does the company want to accomplish with its pricing?

What is loss leaders?

Leader or low prices are legal; however, as you learned earlier, loss leaders, or items priced below cost in an effort to get people into stores, are illegal in many states.

What is Leader pricing?

Leader pricing involves pricing one or more items low to get people into a store. The products with low prices are often on the front page of store ads and "lead" the promotion. For example, prior to Thanksgiving, grocery stores advertise turkeys and cranberry sauce at very low prices.

What is cost-plus pricing?

Many stores use cost-plus pricing, in which they take the cost of the product and then add a profit to determine a price.

What is price lining?

Neckties are often priced using a strategy known as price lining, or price levels. In other words, there may be only a few price levels ($25, $50, and $75) for the ties, but a large assortment of them at each level. Movies and music often use price lining. You may see a lot of movies and CDs for $15.99, $9.99, and perhaps $4.99, but you won't see a lot of different price levels.

What is Odd-even pricing ?

Odd-even pricing occurs when a company prices a product a few cents or a few dollars below the next dollar amount. For example, instead of being priced $10.00, a product will be priced at $9.99. Likewise, a $20,000 automobile might be priced at $19,998, although the product will cost more once taxes and other fees are added.

What is Prestige pricing?

Prestige pricing occurs when a higher price is utilized to give an offering a high-quality image. Some stores have a quality image, and people perceive that perhaps the products from those stores are of higher quality. Many times, two different stores carry the same product, but one store prices it higher because of the store's perceived higher image.

What is Price bundling?

Price bundling occurs when different offerings are sold together at a price that's typically lower than the total price a customer would pay by buying each offering separately. Combo meals and value meals sold at restaurants are an example.

What is Price fixing?

Price fixing, which occurs when firms get together and agree to charge the same prices, is illegal. Usually, price fixing involves setting high prices so consumers must pay a high price regardless of where they purchase a good or service.

What is product mix pricing?

Pricing products consumers use together (such as blades and razors) with different profit margins is also part of product mix pricing.

What is Promotional pricing ?

Promotional pricing is a short-term tactic designed to get people into a store or to purchase more of a product. Examples of promotional pricing include back-to-school sales, rebates, extended warranties, and going-out-of-business sales. Rebates are a great strategy for companies because consumers think they're getting a great deal.

What is Reciprocal agreements ?

Reciprocal agreements are agreements in which merchants agree to promote each other to customers. Customers who patronize a particular retailer might get a discount card to use at a certain restaurant, and customers who go to a restaurant might get a discount card to use at a specific retailer.

What is Robinson-Patman Act?

Robinson-Patman Act limits a seller's ability to charge different customers different prices for the same products.

What is Sealed bid pricing ?

Sealed bid pricing is the process of offering to buy or sell products at prices designated in sealed bids. Companies must submit their bids by a certain time. The bids are later reviewed all at once, and the most desirable one is chosen. Sealed bids can occur on either the supplier or the buyer side

What is status quo ?

Sometimes a firm's objective may be to maintain the status quo or simply meet, or equal, its competitors' prices or keep its current prices. Airline companies are a good example. Have you ever noticed that when one airline raises or lowers its prices, the others all do the same?

What is everyday low pricing?

That is, the price initially set is the price the seller expects to charge throughout the product's life cycle. Companies like Walmart and Lowe's use everyday low pricing. Lowe's emphasizes their everyday low pricing strategy with the letters in their name plus the letter "t" (Lowest).

What is Total costs?

Total costs include both fixed costs and variable costs.

What is Two-part pricing?

Two-part pricing means there are two different charges customers pay. In the case of a cell phone, a customer might pay a charge for one service such as a thousand minutes, and then pay a separate charge for each minute over one thousand.

What is demand backward pricing?

Typically, parents set an amount such as $5 or $10 for a teacher's gift. Knowing that people have certain maximum levels that they are willing to pay for gifts, some companies use demand backward pricing. IKEA also sets a price for a product—which is what the company believes consumers want to pay for it—and then, working backward from the price, designs the product.

What is Uniform-delivered pricing?

Uniform-delivered pricing, also called postage-stamp pricing, means buyers pay the same shipping charges regardless of where they are located. If you mail a letter across town, the postage is the same as when you mail a letter to a different state.

What is Variable costs?

Variable costs are costs that change with a company's level of production and sales. Raw materials, labor, and commissions on units sold are examples of variable costs.

What is price discrimination?

We discussed price discrimination, or charging different customers different prices for the same product, earlier in the chapter. In some situations, price discrimination is legal. As we explained, you have probably noticed that certain customer groups (students, children, and senior citizens, for example) are sometimes offered discounts at restaurants and events.

What is predatory pricing strategy?

When companies act in a predatory manner by setting low prices to drive competitors out of business, it is a predatory pricing strategy.

What is markup?

When companies add a markup, or an amount added to the cost of a product, they are using a form of cost-plus pricing

What is price elastic?

When consumers are very sensitive to the price change of a product—that is, they buy more of it at low prices and less of it at high prices—the demand for it is price elastic

What is penetration pricing strategy ?

penetration pricing strategy is one in which a low initial price is set. Often, many competitive products are already in the market. The goal is to get as much of the market as possible to try the product. Penetration pricing is used on many new food products, health and beauty supplies, and paper products sold in grocery stores and mass merchandise stores such as Walmart, Target, and Kmart.

What is skimming price strategy?

skimming price strategy is when a company sets a high initial price for a product. The idea is to go after consumers who are willing to pay a high price (top of the market) and buy products early. This way, a company recoups its investment in the product faster.

What is price inelastic?

when the demand for a product stays relatively the same and buyers are not sensitive to changes in its price, the demand is price inelastic.