MKTG 101 CHP 18 FINAL EXAM PREP

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A company has total fixed cost of $500,000. Its per unit variable cost is $5.00, and its price per unit is $10.00. What is the break-even point in sales dollars?

$1,000,000

It costs the producer of a coffee maker $44 to make each one. The producer charges wholesale distributors $55 for each coffee maker purchased. The producer's markup in dollars is ________, and in percentage terms, is ________.

$11 ; 20% (selling price - production price) ; (markup / selling price)

What is Average Cost?

(per unit) total cost / related quantity

What is Average Fixed Cost?

(per unit) total fixed cost / related quantity

What is Average Variable Cost?

(per unit) total variable cost / related quantity

What are the types of costs?

- Total Variable Cost - Total Cost - Average Cost - Average Fixed Cost - Average Variable Cost - Total Fixed Cost

What are the different types of Demand - Oriented methods?

- Value-in-Use - Auctions - Sequential Reductions - Subscription - Reference - Leader & Bait - Psychological - Odd-Even - Price Lining - Demand-Backward - Prestige

What are the keys to successful pricing?

- an accurate estimate of what constitutes an acceptable price and making sure the firm can still cover its costs

What are the factors that affect Price Sensitivity?

1) are there substitutes? 2) is it easy to compare prices? 3) who pays the bill? 4) how great is the total expenditure? 5) how significant is the end benefit? 6) How great are the switching costs?

How do you compute the Break-even point (BEP)?

1) determine the fixed cost contribution per unit 2) Find the BEP in units (Total fixed cost / contribution per unit) or in dollars (BEP in units x selling price per unit)

A clothing retailer charged $300 for a man's suit after getting it from the wholesaler for $150. The retailer's markup percentage is:

50%

A store advertised a special sale on new smart TVs and offered an exceptionally low price. Mary went to the store to purchase one. When she got there, the salesperson used high-pressure tactics to try and get her to buy a higher-priced model. When Mary insisted on looking at the advertised TV, the salesperson said that the advertised TV was not in stock. Mary left the store, concluding that the store was engaged in:

Bait Pricing

Are inventory carrying costs fixed or variable?

Both

What does the Break-even analysis allow marketing managers to do?

Compare the ramifications of different prices on the BEP

What type of tool is Break-even Analysis?

Cost-oriented

What types of items is Prestige pricing common for?

Furs Jewelry Perfume

What are two Operating Costs?

Gross Margin Net Margin

Net Margin =

Gross Margin - Fixed Costs

Markups guide pricing by ____________.

Intermediaries

Do marketing managers usually price one item at a time or more than one?

More than one or a full line

Gross Margin =

Net Sales - COGS

What pioneered subscription pricing?

Newspapers and Magazines

Leonard says that he always buys the highest-priced product in a given product category. "You get what you pay for," he says. Leonard would appear to be a good target for:

Prestige Pricing

What are examples of carrying costs?

Warehousing costs (rent, utilities, and salaries) Financial costs ( opportunity cost) Inventory costs (perishability, pilferage, shrinkage, and insurance)

Options & Decoy Pricing Lecture Example

Wine: store has two kinds of wine to buy. One is $10 and the other is $30. ($30 seems expensive) store has three kinds of wine to buy. One is $10, One is $30, and One is $50. ($50 seems expensive, and points your attention to the $30 bottle which compared to the "decoy" bottle @$50)

What is a markup?

a dollar amount added to the cost of products to get the selling price

Firm has a Stockturn rate = 1, with product that costs $100,000 to sell. _________________________ ________________ __________ f the inventory carrying cost is say 20% of inventory value, then the cost of carrying $100,000 in average inventory is $20,000.

a lot of $ tied up in inventory ALL the time they have the inventory

What is a Negotiated Price?

a price that is set based on bargaining between buyer and seller

Percentages are often the same within an industry, thus encouraging:

all players to increase efficiency and cut costs

What if someone other than the consumer pays the bill?

consumers are less price sensitive

What if the total expenditure is large?

consumers may be even MORE price sensitive

What if the end benefit is substantial?

consumers will be less price sensitive

What are Markups necessary for?

covering the costs of distribution and allows intermediaries to make a profit

What if it is easy to compare prices?

ease of comparison tends to increase price sensitivity

Break-even Analysis

evaluates whether the firm will be able to cover all its costs a particular price level

What is Marginal Analysis?

evaluating the change in total revenue and total cost from selling one more unit to find the most profitable price and quantity

Under variable costing, no indirect,

fixed cost is charged as inventory cost.

What does a low stockturn rate do to a firm?

increases inventory carrying costs and ties up working capital

What is Psychological pricing?

it attempts to discover the price range a customer prefers for a given pricing

What is Demand-backward pricing?

it involves setting an acceptable final consumer price and work backward to what a producer can charge

What is Price lining?

it sets a few price levels for a product line and then marks all items at these prices, so a few prices cover the field

What is Prestige pricing?

it sets a rather high price to indicate high quality or high status

What is Complementary product pricing?

means setting prices on several products as a group, to increase sales for the group as a whole

What is Bid pricing?

offering a specific price for each possible job rather than setting a price that applied for all customers

Average cost pricing is risky if demand is not ____________.

predictable

If the unit forecast does not match actual demand, average cost pricing might not

result in a profit

What is Price Lining?

setting a few price levels for a product line and then marking all items at these prices

What is Demand-Backward pricing?

setting an acceptable final consumer price and working backward to what a producer can charge

What is Product-bundle pricing?

setting one price for a set of products

What is Odd-Even Pricing?

setting prices that end in certain numbers

What is Value in use pricing?

setting prices that will capture some of what customers will save by substituting the firm's product for the one currently being used. Reference price: the price a consumer expects to pay

What is Bait Pricing?

setting some very low prices to attract customers but trying to sell more expensive models or brands once the customer is in the store

What is Leader pricing?

setting some very low prices--real bargains--to get customers into retail stores

What is Full-Line Pricing?

setting the prices for a whole line of products. May be market or firm-oriented.

Many intermediaries use a ____________ __________ ___________.

standard markup percentage

What is the fixed-cost contribution per unit?

the assumed selling price per unit MINUS the variable cost per unit

What if there are substitutes available?

the consumer is more price sensitive

What is market-oriented pricing?

the firm makes a line of products that are all aimed at the same general target market. The differences in price should reasonably reflect the differences in the features for each version of the product.

What is firm-oriented pricing?

the firm makes a line of products where each product serves an entirely different target market

What if the switching costs are great?

the greater the initial investment, the less price sensitive customers will be

The more inventory covered,

the higher the insurance premium paid.

What are stockturn rates?

the number of times average inventory is sold in a year

Variable costing is one of the two inventory costing systems --

the other being the total absorption costing

What is Markup percent?

the percentage of the selling price that is added to the cost to get the selling price

Break-even charts help find the break-even point (BEP):

the point where the total revenue from the quantity sold just equals the firm's total costs.

What is a Markup chain?

the sequence of markups firms use in channel pricing

What are Total Variable Costs?

the sum of expenses that change with the level of output (hourly wages, cost of materials, packaging, shipping, and sales commissions)

What is Total Fixed Cost?

the sum of those costs that are fixed in total, regardless of how much of something is produced (rent, managers' salaries, insurance)

What is Total Cost?

the sum of total fixed and total variable costs

If they can increase stockturn to 5 then they have only $20,000 tied up in inventory on average (100,000/5 or $20,000). If the inventory carrying cost is 20% of inventory value, ________ _________ ________ ___________ _________ a savings of $16,000.

then the cost of carrying $20,000 in average inventory is only $4,000 instead of $20000

What are sequential reductions?

they reduce the price over time if it does not sell to minimize inventory cost (including spoilage)

In marketing, carrying cost refers to the ___________ _________ _____ ___________ _____________.

total cost of holding inventory

What is Reference Pricing?

what you expect to pay given your experience with that product or what products like it usually cost

What is Subscription pricing?

where customers pay on a periodic basis for access to a product

Direct costs are costs that vary directly

with the inventory volume


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