Chapter 19 - Pricing Concepts

allowances

A concession in price to achieve a desired goal

price increases

Demand increases as ...

opposite change in total revenue

If demand is elastic, a change in price causes an...

parallel change in total revenue

Inelastic demand results in a...

true

T or F: An organization must also ensure that transfer pricing is fair to all units involved in the transactions

zone pricing

pricing based on transportation costs within major geographic zones

marginal revenue

the change in total revenue resulting from the sale of an additional unit of a product

demand curves

A graph of the quantity of products a firm expects to sell at various prices if other factors remain constant Illustrates that, as price falls, the quantity demanded usually increases. However, for prestige products, there is a direct positive relationship between price and quantity demanded

c

A price developed in the consumer's mind through experience with the product is called a(n) a. frame of reference. b. external reference price. c. internal reference price. d. value-price guideline. e. internalized price

seasonal discounts

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

price or nonprice basis

A product offering can compete on either a

b

A product under nonprice competition would most likely NOT succeed in the market if a. its quality has been upgraded. b. it is easy to duplicate. c. it is packaged differently from similar products. d. a new advertising campaign is established for it. e. it is priced near the competitors' price.

trade discounts

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

freight absorption pricing

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

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

marginal or breakeven analysis

Analysis of demand, cost, and profit relationships can be accomplished through

Other Marketing-Mix Variables

Because of the interrelationship among the marketing-mix variables; price can affect product, promotion, and distribution decisions

Competition

Knowledge of the prices charged for competing brands is essential to allow the firm to adjust its prices relative to competitors' prices

Costs

Most marketers view a product's cost as the floor below which a product cannot be priced

aggressive

Price fluctuates frequently, and price competition among sellers is ...

changes in the external environment

Price is a key element in the marketing mix, because it relates directly to generation of total revenue. It's the only variable in the marketing mix that can be adjusted quickly and easily to respond to...

transfer pricing

Prices charged in sales between an organization's units

cumulative discounts

Quantity discounts aggregated over a stated time period

geographic pricing

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

c

Sellers that emphasize distinctive product features to encourage brand preferences among customers, rather than price, are practicing a. brand differentiation. b. competitor differentiation. c. nonprice competition. d. price competition. e. product competition.

true

T or F: Marginal analysis is only a model It offers little help in pricing new products before costs and revenues are established

true

T or F: To use breakeven analysis effectively, a marketer should determine the breakeven point for each of several alternative prices This makes it possible to compare the effects on total revenue, total costs, and the breakeven point for each price under consideration

Trade, Quantity, Cash, Seasonal, Allowance

The categories of price discounts include:

Company's management strategy and the nature of the units' interaction

The choice of transfer pricing method depends on the...

marginal cost

The extra cost incurred by producing one more unit of a product

c

The types of prices that appear most often in ads are ___, while the types of prices that occur least often in ads are ____ prices. a. sale; reference b. discount; cost-plus c. bargain; premium d. comparison; cost-plus

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

pricing objectives

These heavily influence price-setting decisions

Actual full cost, Standard full cost, Cost plus investment, Market-based cost

Transfer price is determined by one of the following methods:

organizational and marketing objectives pricing objectives costs other marketing-mix variables channel member expectations customer interpretation and response competition legal and regulatory issues

WHAT ARE THE EIGHT KEY FACTORS THAT MAY INFLUENCE MARKTERS' PRICING DECISIONS?

Channel Member Expectations

What the revenue channel members expect for their functions must also be considered when making price decisions

e

What type of discount is given to a business purchaser for performing activities such as transporting, storing, and selling? a. Cash b. Geographic c. Service d. Quantity e. Trade

organizational and marketing objectives

When setting prices, marketers should make decisions consistent with the organization's goals and mission

external reference price

a comparison price provided by others

price elasticity of demand

a measure of the sensitivity of demand to changes in price If demand is elastic, a change in price causes and opposite change in total revenue Inelastic demand results in a parallel change in total revenue when a product's price is changed

internal reference price

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

FOB destination

a price indicating the producer is absorbing shipping costs

cash discounts

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

price fixing

an agreement among firms to charge one price for the same good

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 product 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 competition

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

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

price war

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

price

key element in the marketing mix, because it relates directly to generation of total revenue. It's the only variable in the marketing mix that can be adjusted quickly and easily to respond to changes in the external environment

noncumulative discounts

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

breakeven point

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

FOB factory

the price of merchandise at the factory before shipment

barter

the trading of products Oldest form of exchange

price

the value paid for a product in a marketing exchange

breakeven analysis

this approach assumes the quantity demand is basically fixed and the major task is to set prices to recover costs

Customer Interpretation and Response

Buyer's perception of price may vary Some consumer segments are sensitive to price, but others may not be Thus, before determining price, a marketer needs to be aware of its importance to the target market

uniform geographic pricing

Charging all customers the same price, regardless of geographic location

quantity discounts

Deductions from the list price for purchasing in large quantities

breakeven analysis

Determines the number of units that must be sold to break even; important in setting price

nonprice competition

Emphasizing factors other than price to distinguish a product from competing brands Establishing brand loyalty by using non-price competition works best when the product can be physically differentiated and the customer can recognize these differences

physically differentiated

Establishing brand loyalty by using non-price competition works best when the product can be WHAT...and the customer can recognize these differences

marginal analysis

Examines what happens to a firm's costs and revenues when production or sales volume is changed by one unit Combines the demand curve with the firm's costs to develop a price that yields maximum profit

Legal and Regulatory Issues

Government regulations and legislation also influence pricing decisions, especially with regard to practices such as price fixing, deceptive pricing, and predatory pricing