Ch. 15- Strategic Pricing Methods (guide)

buy 3 get 1 free

Noncumulative Quantity Discount

Some grocery retailers have invested in their own private brands, charging just slightly lower than national brands to signal the quality of the products is good, involving the use of _____.

competitor

The practice of setting different price points in an attempt to appeal to several different markets is called _____.

(price lining )For example, a car may come in three different styles: a value model, a standard model and a limited model. While each model has a different price point, the costlier model is seen as higher-end when compared to the base model, while both retain the same brand name.

weakness of competitor--based pricing

Competitor-oriented pricing is risky where a firm's cost position is weaker than its competitors

Consumers who have less time and patience for watching for supermarket specials and slipping coupons would most likely prefer ______.

EDLP

Trader Joe's offers and assorment of exclusive gourmet products at impossibly low prices. These prices are not limited-time offers or special discounts. Instead, they reflect Trader Joe's ______ strategy.

EDLP

"Which of the following price-related actions by a manufacturer most likely would be a violation of the Robinson-Patman Act?

Giving a special advertising allowance to a retailer that was having difficulty competing in its local market

Retailers that use loss leaders to draw consumers to their stores assume that these people will

Purchase other nonsale items on the same shopping trip

Reference Price

When consumers examine products, they often compare an observed price to an internal price they remember. This is known as a(n) ________ price. also known as original regular price

Rebates

a consumer discount in which a portion of the purchase price is returned to the buyer in cash; the manufacturer, not the retailer, issues the refund

Bait-and-Switch

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

pricing strategy

a long-term approach to setting prices broadly in an integrated effort based on the 5 C's of pricing

High/Low Pricing

a pricing strategy that relies on the promotion of sales, during which prices are temporarily reduced to encourage purchases. combines those who are not price sensitive and more price-sensitive customers.

Everyday Low Pricing (EDLP)

a strategy companies use to emphasize the continuity of their retail prices at a level somewhere between the regular, non sale price and the deep discount sale prices their competitors may offer walmart

Cost of Ownership Method

a value-based method for setting prices that determines the total cost of owning the product over its useful life

Lease

a written agreement under which the owner of an item or property allows its use for a specified period of time in exchange for a fee

"A producer of sports equipment offers its retailers a 2 percent price reduction on all purchases if the dealer advertises the products locally. Apparently, the producer is using

advertizing allowance

Competitor-Based Pricing Method

an approach that attempts to reflect how the firm wants consumers to interpret its products relative to the competitors' offerings; - for example, setting a price close to a competitor's price signals to consumers that the product is similar, whereas setting the price much higher signals greater features, better quality, or some other valued benefit

Cost-Based Pricing Method

an approach that determines the final price to charge by starting with the cost, without recognizing the role that consumers or competitors' prices play in the marketplace= weakness

Value-Based Pricing Methods

an approach that focuses on the overall value of the product offering as perceived by consumers, who determine value by comparing the benefits they expect the product to deliver with the sacrifice they will need to make to acquire the product

Cumulative Quantity Discount

business pricing tactic; type of quantity discount; uses the amount purchased over a specified time period and usually involves several transactions ; encourages resellers to maintain their current supplier because the cost to switch must include the loss of the discount

Price Lining

consumer market pricing tactic of establishing a price floor and a price ceiling for an entire line of similar products and then setting a few other price points in between to represent distinct differences in quality

Price Bundling

consumer pricing tactic of selling more than one product for a single can be used to sell slow-moving items, to encourage customers to stock up so they won't purchase competing brands, to encourage trail of a new product, or to provide an incentive to purchase a less desirable product or service to obtain a more desirable one in the same bundle

Leader Pricing

consumer pricing tactic that attempts to build store traffic by aggressively pricing and advertising a regularly purchased item, often priced at or just above the store's cost. can be illegal While in the store to get the great deal on,say milk, the consumer will also probably pick up other items he or she needs. The store has priced these items at higher profit margins, so their purchase will more than cover the lower markup on the milk.

Yvonne estimates the average cost of her floral arrangements is $14 regardless of whether she is doing 5 or 20 arrangements that day. She adds a standard markup to the $14 estimate to determine her price. Yvonne is using a ________________ pricing method.

cost based

In determining the price for his company's new personal computer photography printer, Raymond is assessing the total cost of owning his printer as compared to alternative products available in the market. Raymond is using _______________ pricing.

cost of ownership

Jewelers that price their products by adding a standard markup for profit, like doubling the cost of the product in order to determine the selling price to consumers, use a _____ approach.

cost-based

earning a free haircut after the 10th

cumulative quantity discount

with value based pricing the firm is both

customer and competition driven

Slotting Allowances

fees firms pay to retailers simply to get new products into stores or to gain more or better shelf space for their products

disadvantage price skimming

high cost for small volume

One reason marketers of new, innovative products often start out with a price skimming strategy rather than a market penetration strategy is that:

its easier to lower prices than raise them

Supermarket chains often implement _____, a pricing tactic of selling leading brands of products below their own cost in order to build store traffic.

leader pricing

pricing on cocktail sauce, which gives employees the perfect opportunity to ask if the customer wants a pound of shrimp with that sauce.

leader pricing

The primary reasons manufacturers offer seasonal discounts to retailers are to more easily plan production schedules and to:

lessen inventory of finished goods

A retailer advertises a coffee maker at a below-cost price to attract customers and stimulate the purchase of nonsale merchandise. The firm is engaged in what pricing strategy?

loss leader

When Pepsi came out with Pepsi Blue and priced it at half price to attract buyers, Pepsi was using ______.

market penetration strategy

Valeo Fashions has just introduced a new line of fashion dresses for teens. It will initially enter the market at high prices in a ______ pricing strategy.

market skimming

Horizontal Price Fixing

occurs when competitors that produce and sell competing products collude, or work together, to control prices, effectively taking price out of the decision process for consumers When direct competitors (on the same level as you on the distribution level) get together to decide price. per say illegal

Vertical Price Fixing

occurs when parties at different levels of the same marketing channel (e.g., manufacturers and retailers) collude to control the prices passed on to consumers Sellers and resellers agree on prices the reseller will charge or price related terms of resale (can get around it by asking them to sell it at a certain price but making no official agreement) rule of reason

coupons

offer a discount on the price of specific items when they're purchased.

Mona is selling her artwork at a local festival. Her art is selling well, but t-shirts she had made up with her artwork are not selling. She decides to offer a package price for her art with a t-shirt included. Mona is using:

price bundling

The Clayton Act and the Robinson-Patman Act forbid certain types of:

price discrimination

Competitors illegally getting together to raise, lower, or stabilize prices.

price fixing

Quantity Discount

price tactic of offering a reduced price according to the amount purchased; the more the buyer purchases, the higher the discount and, of course, the greater the value

Odd Prices

prices that end in odd numbers, usually FOR EDLP

Seasonal Discounts

pricing tactic of offering an additional reduction as an incentive to retailers to order merchandise in advance of the normal buying season ( Buy air conditioners before April 1 and get a discount)

Noncumulative Quantity Discount

pricing tactic that offers a discount based on only the amount purchased in a single order; provides the buyer with an incentive to purchase more merchandise immediately

Markdowns

reductions retailers take on the initial selling price of the product or service

In determining the price for his company's new pocket digital camera, Matt is assessing what consumers consider the regular or original price for similar cameras available in the market. Matt is assessing the influence of _______ on pricing strategy.

reference price

Which of the following refers to the prices that a buyer carries in his or her mind and refers to when looking at a given product?

reference price

Experience Curve Effect (learning curve)

refers to the drop in unit cost as the accumulated volume sold increases; as sales continue to grow, the costs continue to drop, allowing even further reductions in the price -

Improvement Value

represents an estimate of how much more (or less) consumers are willing to pay for a product relative to other comparable products (survery)

Market Penetration Strategy

setting the initial price low for the introduction of the new product - objective being to build sales and profits quickly -discourages competitors from entering the market because the profit margin is relatively low.

Pricing Tactics

short-term methods, used to focus on company objectives, costs, customers, competition, or channel members; can be responses to competitive threats (e.g., lowering price temporarily to meet a competitor's price reduction) or broadly accepted methods of calculating a final price for the customer that is short term in nature

Advertising Allowance

tactic of offering a price reduction to channel members if they agree to feature the manufacturer's product in their advertising and promotional efforts

Cash Discount

tactic of offering a reduction in the invoice cost if the buyer pays the invoice prior to the end of the discount period Encourages buyers to pay before the discount period ends Seller benefits either way ex (2/10, net 30)

Loss Leader Pricing

takes the tactic of leader pricing one step further by lowering the price below the store's cost

Dan and Ken were discussing the use of coupons as a sales promotion for their paper products store. They knew that coupons would increase immediate sales, but they were concerned that:

the additional cost of handling the coupons might be a hidden cost, customers might stock up on inventory and hurt future sales, customers might hold off on future purchases hoping for additional coupons later on, and they might not generate sales on other merchandise to cover lost profits.

Size Discount

the most common implementation of a quantity discount at the consumer level; the larger the quantity bought, the less the cost per unit -less likely to switch brands

Price Fixing

the practice of colluding with other firms to control prices

Price Discrimination

the practice of selling the same product to different resellers (wholesalers, distributors, or retailers) or to the ultimate consumer at different prices; some, but not all, forms of price discrimination are illegal

Uniform Delivered Pricing

the shipper charges one rate, no matter where the buyer is located

Zone Pricing

the shipper sets different prices depending on a geographical division of the delivery areas

Making an average freight charge to all buyers.

uniform delivered pricing

Rebates provide manufacturers with greater control than coupons and provide the firm with:

valuable customer information

Joy perfume, which advertises its brand as "The costliest perfume in the world" uses which of the following approaches to pricing?

value-based pricing

predatory pricing

when a firm sets a very low price for one or more of its products with the intent to drive its competition out of business; illegal -difficult to prove

Price Skimming

when innovators and early adopter are willing to pay for a higher price to obtain a new product/service; after a while, companies lower the price to capture the next most price-sensitive market.When a company introduces a product at a very high price and then gradually drops the price over time, it is pursuing a ________ strategy.

Cost-based pricing assumes costs:

will not vary much for different levels of production.

Clark Manufactured Housing Company charges $500 for deliveries within 50 miles and $800 for deliveries 51 to 100 miles away from their factory. The company is using a ____________ pricing tactic.

zone