Exam 3 Marketing Chapter 10
Wheeler-Lea Act
(also called the Advertising Act) is an amendment to the FTCA.27 Its passage removed the burden of proving that unfair and deceptive practices had to injure competition as well as customers
The Importance of Pricing
- Price - Revenue - Profits
U.S. Laws Affecting Pricing
- Robinson-Patman Act - Federal Trade Commission Act - Wheeler-Lea Act - Sherman Antitrust Act
Federal Trade Commission Act (FTCA)
A law passed in 1914 that established the Federal Trade Commission and sought to prevent practices that may cause injury to customers, that cannot be reasonably avoided by customers, and that cannot be justified by other outcomes that may benefit the consumer or the idea of free competition.
Name-Your-Own price auction
A pricing tactic in which the consumer submits a bid at the price they are willing to pay for a product or service, and the auction site conducts a search to find matches with prices set by suppliers.
The Price-Setting Process Step 4
Analyze the Competitive Price Environment - Match competitor prices - Price lower than competitors, offering customers greater value - Price higher because the firm offers a superior product
Tariffs
Are taxes on imports and exports between countries
Once a company estimates fixed and variable costs, it can incorporate them into ________-_____ _______
Break-Even analysis
The Price-Setting Process Step 5
Choose a Price - reference prices - underpricing
The Price-Setting Process Step 1
Define the Price Objectives - Profit Maximization - Volume Maximization - Survival Pricing
The Price-Setting Process Step 3
Determine the Costs Setting a price begins by knowing the fixed and variable costs that go into producing a good or service. It is the most problematic step in the price-setting process for marketers - Fixed costs - Variable costs - Break-even analysis - Break-even point
Price Discrimination
Different prices for different customers
The Price-Setting Process Step 2
Evaluate Demand step in setting a price is evaluating demand for the product at various price levels. The concept of supply and demand sits at the heart of setting prices. - Marginal revenue - Marginal cost - Price sensitivity - Price elasticity of demand - Inelastic demand - Elastic demand
Costs that remain constant and do not vary based on the number of units produced or sold are called ________ ______
Fixed Costs
___________ ___________ plays an important role in analyzing the competitive price environment
Industry Structure
Deceptive Pricing
Intentionally misleading customers with price promotions
The Price-Setting Process Step 6
Monitor and Evaluate the Effectiveness of the Price Pricing strategy evolves throughout the product life cycle; it needs repeated monitoring and evaluation, to determine how effectively the strategy meets the pricing objectives. - unbundling - escalator clause
Profits
Profits are the firm's "bottom line": revenue minus total costs. - Profits = Revenue - Costs
Predatory Pricing
The practice of first setting prices low with the intention of pushing competitors out of the market or keeping new competitors from entering the market, and then raising prices to normal levels.
Escalator Clause
ensures that provides of goods and services do not encounter unreasonable financial hardship as a result of uncontrollable factors relating to the product
Survival Pricing
involves lowering prices to the point at which revenue just cover costs, allowing the firm to endure (survive) during a difficult time
Unbundling
involves separating out the individual goods, services, or ideas that make up a product and pricing each one individually. Such a strategy allows marketers to maintain a similar price on the core product but recover costs in other ways on related goods and services.
Gray Market
involves the sale of branded products through legal but unauthorized distribution channels.
Price elasticity of demand
is a measure of price sensitivity that gives the percentage change in quantity demanded in response to a percentage change in price (holding constant all the other determinants of demand, such as income). It is one of the most important concepts in marketing and should be considered when pricing any product.
Dynamic Pricing
is a pricing tactic that involves constantly updating prices to reflect changes in supply, demand, or market conditions
Odd Pricing
is a tactic in which a firm prices products a few cents below the net dollar amount
Inelastic Demand
is demand for which a given percentage change in price results in a smaller percentage change in quantity demanded
Elastic Demand
is demand for which a given percentage change in price results in an even larger percentage change in quantity demanded.
Profit Maximization
is designated to maximize profits on each unit sold. it involves setting a relatively high price for a period of time after the product launches
Volume Maximization
is designed to maximize volume and revenue for a firm. it is the process of setting prices low to encourage a greater volume of purchases
Price
is one of the most important strategic decisions a firm faces: It reflects the value the product delivers to consumers as well as the value the product captures for the firm. - reflects money, time, effort
Profit Margin
is the amount a product sells for above the total cost of the product itself - Net income divided by sales
Price Sensitivity
is the degree to which the price of a product affects consumers' purchasing behavior. it varies from product to product and from consumer to consumer
Break-Even Analysis
is the process of calculating the break-even point, which equals the sales volume needed to achieve a profit of zero
Revenue
is the result of the price charged to customers multiplied by the number of units sold. - is the result of price - Revenue = units sold x price
Markup Pricing
marketers add a certain amount, usually a percentage, to the cost of the product, to set the final price - Cost-plus pricing - Unit cost of product + (desired % return x Unit Cost) - Profit Margin
Dumping
occurs when a company sells its exports to another country at a lower price than it sells the same product in its domestic market
Robinson-Patman Act
prevents unfair price discrimination by ensuring that the seller offer the same price terms to customers at a given level of trade
One of the most challenging aspects of pricing is initiating _______ ___________
price increases
Seasonal Discounts
prices lowered during off season
Even Pricing
pricing tactic that sets prices at even dollar amounts
Prestige Pricing
product is priced higher than competitors
The Objective of strategic pricing is ___________________
profitability
Marginal Cost
the change in total cost that results from producing one additional unit of product
Marginal Revenue
the change in total revenue from an additional unit sold
Break-Even point
the point at which the costs of producing a product equal the revenue made from selling the product - Divide total fixed costs by the unit contribution margin, which is the selling price per unit minus the variable costs per unit - Cost-volume profit graph
Loss-Leader Pricing
the pricing policy of setting prices very low or even below cost to attract customers into a store - causes financial loss for firm
Price Bundling
two or more products bundled together and sold at one price
Costs that vary depending on the number of units produced or sold are called
variable costs
Sherman Antitrust Act
was passed in 1890 to eliminate monopolies and guarantee competition. It combats anticompetitive practices, reduces market domination by individual corporations, and preserves unfettered competition as the rule of trade
Dynamic pricing helps marketers emphasize ________ ______________, which is a strategy for maximizing revenue even when a firm has a fixed amount of something (goods, services, or capacity).
yield management
References Prices
are the prices that consumers consider reasonable and fair for a product
Underpricing
charging someone less than they are willing to pay
Price fixing
companies collude to set price
