Chapter 19 Marketing

Promotional allowance

a price reduction granted to dealers for participating in advertising and sales support programs intended to increase sales of a particular item

4 methods to determine price

actual full cost, standard full cost, cost plus investment, and market-based cost

importance of price in marketing

almost anything of value can be assessed by price price has a psychological influence on customers

cost plus investment

calculated as full cost plus, the cost of a portion of the selling unit's assets used for internal needs

market-based cost

calculated at the market price less a small discount to reflect the lack of sales effort and other expenses

standard full cost

calculated based on what it would cost to produce the goods at full plant capacity

actual full cost

calculated by dividing all fixed and variable expenses for a period into the number of units produced

price discrimination

employing price differentials that injure competition by giving one or more buyers a competitive advantage

base-point pricing

geographic pricing that combines factory price and freight charges from the base point nearest the buyer

What you need to know for price and demand

if price increases demand goes down if price decreases demand goes up

Factors that Affect Pricing Decisions: Factor #7- Competition

A marketer needs to know competitors' prices so it can adjust its own prices accordingly

5 Categories of Price Discounting: Cash Discounts

A price reduction given to buyers for prompt payment or cash payment Ex.- 2/10 net 30

Seasonal Discount

A price reduction given to buyers for purchasing goods or services out of season

5 Categories of Price Discounting: Trade (functional) Discount

A reduction off the list price a producer gives to an intermediary for performing certain functions

Predatory pricing

Also called undercutting, involves the intent to set a product's price so low that rival firms cannot compete and therefore withdraw from the marketplace

Price Fixing

An agreement among competing firms to raise, lower, or maintain prices for mutual benefit

Why is breakeven important?

Because you are figuring out how many units until you make a profit

Value Consciousness

Concerned about price and quality of a product

Prestige Sensitivity

Drawn to products that signify prominence and status

Factors that Affect Pricing Decisions: Factor #1- Organizational and Marketing Objectives

Marketers should set prices that are consistent with the organization's goals and mission

Factors that affect Pricing Decisions

Organizational and Marketing objectives Pricing Objectives Costs Other Marketing Mix Variables Channel Member Expectations Customers' Interpretation and Response Competition Legal and Regulatory Issues

Zone pricing

Pricing based on transportation costs within major geographic zones

Factors that Affect Pricing Decisions: Factor #2- Types of Pricing Objectives-

Pricing objectives should be compatible with the firm's marketing objectives

Profit and Loss Statement (P&L)

Revenue (Price * units) TOP LINE -Cost of Goods Sold (direct cost) = Gross Profit - SG&A (Overhead- other expenses) = Net Profit BOTTOM LINE

Price Consciousness

Striving to pay low prices

Break even point

The point at which the costs of producing a product equal the revenue made from selling the product

Deceptive Pricing

The use of false or misleading statements or practices to persuade buyers that a product is a better deal than it really is

5 Categories of Price Discounting

Trade, quantity, cash, seasonal, and allowance

Factors that Affect Pricing Decisions: Factors #5- Channel Member Expectations

When making price decisions, a producer must consider what members of the distribution channel except, such as discounts for large orders, prompt payment, and support activities such as sales training and sales promotion.

Factors that Affect Pricing Decisions: Factor #6- Customers' Interpretation and Response

When making pricing decisions, marketers should address a vital question: How will our customers interpret our prices and respond to them?

Who wins in a price war?

Whoever can make the product the cheapest

External reference price

a comparison price provided by others

Allowances

a concession in price to achieve a desired goal

Factors that Affect Pricing Decisions: Factor #3- Costs

a marketer should be careful to analyze all costs so they can be included in the total cost associated with a product

internal reference price

a price developed in the buyer's mind through experience with the product

FOB (free on board) destination

a price indicating the producer is absorbing shipping costs buyer takes delivery of goods being shipped to it by a supplier once the goods arrive at the buyer's receiving dock

Freight absorption buying

absorption of all or part of actual freight costs by the seller

Factors that can influence demand

changes in buyers' needs variations in the effectiveness of other marketing-mix variables the presence of substitutes dynamic environment

uniform geographic pricing

charging all customers the same price, regardless of geographic location

5 Categories of Price Discounting: Quantity Discounts

deductions from the list price for purchasing in large quantities

Nonprice Competition

emphasizing factors other than price to distinguish a product from competing brands

Price Competition

emphasizing price as an issue and matching or beating competitors' prices

Price War

involves two or more companies engaging in intense price competition- in an effort to boost market share

noncumulative discounts

one-time price reductions based on the number of units purchased, the dollar value of the order, or the product mix purchased

trade-in allowance

price reductions granted for turning in a used item when purchasing a new one

Transfer pricing

prices charges in sales between organization's units

Factors that Affect Pricing Decisions: Factor #4- Other Marketing Mix Variables

pricing decisions can influence product, people, promotion, and place

Cumulative Discounts

quantity discounts aggregated over a stated time period

FOB (free on board) factory

the price of merchandise at the factory before shipment

Barter

the trading of products It is the oldest form of exchange

Price

the value paid for a product in a marketing exchange

Interpretation

what the price means or what it communicates to customers

Geographic Pricing

reductions for transportation and other costs related to the physical distance between buyer and seller

Customer response

refers to whether the price will move customers closer to purchase of the product and the degree to which the price enhances their satisfaction with the purchase experience and with the product after purchase