MKTG ch. 12

discount

A deduction from the price of an item

trade discount

A deduction from the product's list price, given to retailers and wholesalers that buy. This compensates intermediaries for handling functions such as warehousing products.

reference pricing

A firm displays a moderately priced product next to a higher-priced product

multiple unit pricing

A firm sells two or more identical products for a single price

Price elasticity of demand

A measure of the sensitivity of demand to changes in price

cash discount

A price deduction for business buyers that pay promptly.

quantity discount

A price deduction for business buyers that purchase in large quantities. This encourages larger orders.

seasonal discount

A price deduction for buyers that buy when a product is not in season. This stimulates sales during off-peak periods.

Allowance

A price reduction to achieve a specific objective, such as encouraging buyers to trade in old equipment when buying new equipment. This encourages new purchases.

cost-based pricing

Adding a dollar amount or a percentage of the cost to the cost of the product to establish the price

cost-plus pricing

Adding a percentage of the manufacturer's total cost to that total cost to establish the price of a custom-made product

markup pricing

Adding to the cost of the product a predetermined percentage of that cost

Special-event pricing

Advertised sales or price cutting linked to a holiday, season, or event

status qou pricing objective

An objective to maintain the organization's current situation, such as holding its current market share or matching the prices of rivals.

Differential pricing

Charging different prices to different buyers for the same quality and quantity of product

Price skimming

Charging the highest possible price that buyers who most desire the product will pay

Fixed costs

Costs that do not vary with changes in the number of units produced or sold

Variable costs

Costs that vary directly with changes in the number of units produced or sold

What happens in a normal demand curve, where there is an inverse relationship between price and quantity? The price goes up as demand goes up. Demand goes down as the price goes down. Demand goes up as the price goes down. The price goes down as demand goes up.

Demand goes up as the price goes down.

Which one of the following types of products is not subject to inelastic demand? Dining room furniture Electricity Gasoline Status-symbol cars

Dining room furniture

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

Which of the following are advantages of penetration pricing? (Select two) Helps recover high research and development costs more quickly Encourages customers to try the new product Holds down demand when the firm has limited production capability at the introduction Helps increase sales volume, which leads to production economies of scale Allows more flexibility in making price changes

Encourages customers to try the new product Helps increase sales volume, which leads to production economies of scale

Negotiated pricing

Establishing a final price through bargaining between seller and customer

pricing objectives

Goals that describe what a firm wants to achieve through pricing

To more accurately gauge the target market's evaluation of price, firms should look at which of these? (Select three)

How much value customers expect from a product What product quality customers expect The importance customers place on a product

allowance

In the case of a trade-in allowance, to assist the buyer in making the purchase and potentially earning a profit on the resale of used equipment; in the case of a promotional allowance, to ensure that dealers participate in advertising and sales support programs

If a firm sells a prestige product, what kind of relationship between price and quantity demanded should it expect? It should expect to sell more at higher prices, up to a point. It should expect to sell more at ever-higher prices. It should expect to sell more when it lowers the price. It should expect to sell less at ever-higher prices.

It should expect to sell more at higher prices, up to a point.

What happens when the firm achieves the breakeven point?

It will make money on each unit sold after that point.

Bundle pricing

Packaging together two or more complementary products and selling them for a single price

bundle pricing

Packaging two complementary products together for a single price

profit pricing objective

Price levels set by senior decision makers, expressed in terms of a percentage of sales revenues or specific dollar figures.

When a company sets a high price for the introduction of a new product, it is using which type of pricing? Price skimming Differential pricing Demand-based pricing Penetration pricing

Price skimming

transfer pricing

Prices charged in sales between an organization's units

Reference pricing

Pricing a product at a moderate level and positioning it next to a more expensive model or brand

demand-based pricing

Pricing based on the level of demand for the product

competition-based pricing

Pricing influenced primarily by competitor's prices

customary pricing

Pricing items on the basis of tradition

customary pricing

Pricing on the basis of tradition

everyday low pricing (EDLP)

Pricing products low consistently

captive pricing

Pricing the basic product in a product line low, but pricing related items at a higher level

Premium pricing

Pricing the highest-quality or most versatile products higher than other models in the product line

price leaders

Products priced below the usual markup, near cost, or below cost

Several factors affect the importance of price, including the type of product, the target market itself, and the purchase situation:(3)

Purchase situation: Buyers are willing to pay higher prices for snacks purchased in the movie theater than they would in other circumstances.

odd number pricing

Puts certain numbers at the end of a price to focus attention on the dollar amount and enhance the perception of the price or product

Geographic pricing

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

When a firm sets one price in its home market and a different, higher price in a higher-cost market far away, it is using which type of pricing?

Secondary-market pricing

everyday low prices (EDLPs)

Setting a low price for products on a consistent basis

Comparison discounting

Setting a price at a specific level and comparing it with a higher price

market share pricing objective

Setting a target for maintaining or building market share. Firms calculate a product's market share by looking at the sales of its product relative to overall industry sales. Because high market share can mean high profits, many firms strive to increase market share.

Secondary-market pricing

Setting one price for the primary target market and a different price for another market

penetration pricing

Setting prices below those of competing brands to penetrate a market and gain a significant market share quickly

survival pricing objective

Setting prices low to attract more sales. At times, the firm may even be willing to lose money temporarily in order to stimulate customer purchasing.

cash flow pricing objective

Setting prices to quickly recover cash. This objective is sometimes used to bring in capital spent in developing a new product.

Psychological pricing

Strategies that encourage purchases based on consumers' emotional responses, rather than on economically rational ones

Several factors affect the importance of price, including the type of product, the target market itself, and the purchase situation:(2)

Target market: In some cases, different customers within a market pay different prices for some goods and services, such as adults paying higher prices for meals and movie tickets.

Periodic discounting

Temporary reduction of prices on a patterned or systematic basis

random discounting

Temporary reduction of prices on an unsystematic basis

Marginal cost (MC)

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

Average fixed cost

The fixed cost per unit produced

breakeven point

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

Price lining

The strategy of selling goods only at certain predetermined prices that reflect definite price breaks

multiple-unit pricing

The strategy of setting a single price for two or more units

Odd-number pricing

The strategy of setting prices using odd numbers that are slightly below whole-dollar amounts

Total cost

The sum of average fixed and average variable costs, times the quantity produced

average total cost

The sum of the average fixed cost and the average variable cost

Average variable cost

The variable cost per unit produced

seasonal

To allow a marketer to use resources more efficiently by stimulating sales during off-peak periods

trade

To attract and keep effective resellers by compensating them for performing certain functions, such as transportation, warehousing, selling, and providing credit

quantity

To encourage customers to buy large quantities when making purchases and, in the case of cumulative discounts, to encourage customer loyalty

cash

To reduce expenses associated with accounts receivable and collection by encouraging prompt payment of accounts

In a competitive marketplace, why would a firm price its product slightly higher than those of its rivals? To increase market share To send a signal of high quality To deliver revenue in the long term To achieve a certain markup

To send a signal of high quality

Which of the following are types of pricing used in business markets? (Select three)

Trade discounts Transfer pricing Geographic pricing

Several factors affect the importance of price, including the type of product, the target market itself, and the purchase situation:(1)

Type of product: Buyers are more sensitive to prices of products bought more regularly, such as gasoline, but less sensitive to prices of products bought less frequently, such as luggage.

return on investment pricing objective

Using price to achieve a certain rate of return, or profitable gain, on the organization's investment.

first step in setting prices?

developing pricing objectives

To use price competition most effectively, an organization should focus on _______ and _______. (Select two)

keeping its costs low responding to rivals' price changes

With demand-based pricing, a company will typically set a _______ price during slow periods to boost demand.

lower

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

marginal revenue

When the buyer pays for delivery of a business product, the price as quoted as F.O.B. , but when the seller pays for delivery the price is quoted as F.O.B.

origin, distination

A business must decide whether it will use _____ competition only or ____ competition before setting a price for its product.

price, nonprice

The next step in the pricing process is to understand

prices of competing products.

Assessing how customers in the target market evaluate price is the _______ stage in the pricing process.

second

The third stage in the pricing process is to understand the

the relationship between a product's price and the quantity demanded by customers.

Once pricing objectives have been established, the second stage in the pricing process is to

understand how customers in the target market evaluate prices.

Costs that change with the level of production, such as raw materials costs, are referred to as

variable costs