MKTG Chapter 11

cost oriented pricing approaches

a price setting stresses the cost side of the pricing problem not the demand size. price is set by looking at the production and marketing costs and then adding enough to cover direct expenses, overhead, and profit

profit oriented pricing approaches

balance both revenues and costs to set price

price discrimination

clayton act. charging different prices to different buyers for good or like grade and quality

pricing constraints include:

demand, newness, cost of production/ marketing, competitors price, legal and ethical considerations

standard markup pricing

entails adding a fixed percentage to the cost of all items in a specific product class. Varies depending the type of retail stores and the product involved.

target pricing

estimate price that the ultimate consumer will pay for a product, then work backwards to determine what price they can charge to the wholesalers. Adjusting competitions and features of a product to achieve the target price to consumers

unit variable cost

expressed on a per unit basis = Variable cost/ quantity

pricing constraints

factors that limit the range of prices a firm may set

target profit pricing

firms sets an annual target of a specific dollar volume of profit

pricing objectives

involve specifying the role of price in an organization's marketing and strategic plans

odd even pricing

involves setting prices a few dollars or cents under an even number.

cost plus pricing

involves summing the total unit cost of providing a product or service and adding a specific amount to the cost to arrive at a price

price =

list price - incentives and allowances + extra fees

value

perceived benefits/ price

price elasticity of demand

percentage change in quantity demanded relative to a percentage change in price

deceptive pricing

practice of charging a very low price for a product with the intent of driving competitors out of business.

customer pricing

products where tradition, a standardized channel of distribution, or other competitive facts dictate the price

price=

profit + costs / product sold

profit equation

profit = total revenue - total costs

unit volume

quantity produced or sold, as a pricing objective

market share

ratio of the firm's sales revenue or unit sales to those of the industry

discounts

reductions from list price that a seller gives a buyer as a reward for some activity of the buyer that is favorable to the seller

about at or below market price

self-explanatory

target return on sales pricing

set prices that will give them a profit that is a specified percentage

one price policy

setting one price for all buyers of a product or service.

prestige pricing

settting a high price so that quality- or status-conscious consumers will be attracted to product and buy it

competition oriented pricing

stress competitors or the market

variable costs

sum of the expenses of the firm that vary directly with the quantity of a product hat is produced and sold

yield management pricing

the charging of different prices to max revenue for a set amount of capacity at any given time

bundle pricing

the marketing of two or more products in a single package price.

price

the money or other considerations exchanged for the ownership or use of a product or service.

fixed costs

the sum of the expenses of a firm that are stable and do not change with the quantity of product that is produced or sold

total costs

the sum of their fixed and variable costs

demand oriented approach

underlying expect customer tastes and preferences more heavily than such factors are cost, profit, and comp when selecting a price level

select an approximate price level

1. consider pricing objectives 2. choose among general pricing approaches 3. the price is then analyzed in terms of cost, volume and profit relationships

3 key factors that influence demand for a product

1. consumer taste 2. price and availability of similar products 3. consumer income

price level

1. demand oriented 2. cost oriented 3. profit oriented 4. competition oriented

skimming is effective when:

1. enough prospective customers are willing to buy the product immediately at the high initial price to make these sales profitable 2. the high initial price will not attract competitors 3. lowing the price has only minor effect on increasing sales volume and reducing unit costs 4. customers interpret the high price as a signal of high quality

firm using penetration pricing may:

1. maintain the initial price for a time to gain profit lost from its low introductory level 2. lower the price further, counting on the new volume to generate the necessary profit

3 different objectives related to a firms profit

1. managing for long run profits (immediate profit by developing quality products to penetrate competitive markets 2. maximizing current profit (targets can be set and performed measure quickly, quarterly) 3. target return (sets profit goal)

conditions of penetration pricing:

1. many segments of the market are price sensitive 2. low initial price discourages competitors from enter the marketing 3. unit production and marketing cost fall dramatically as production volumes increase

4 kinds of discounts

1. quantity 2. seasonal 3. trade 4. cash

setting a final price steps

1. select an approximate price level 2. set the list or quoted price 3. make special adjustments to the list or quoted price

4 cost concepts in pricing decisions

1. total cost 2. fixed cost 3. variable cost 4. unit variable cost

break even analysis

analyzes the relationship between total revenue and total cost to determine profitability. = fixed cost/ unit price - unit variable cost

elastic demand

exists when a 1% decrease in price produces more than 1% increase in quantity demanded, thereby actually increasing total revenue

demand curve

graph that relates the quantity sold and price, showing the max number of units that will be sold at a given time

skimming price

highest initial price that customers really desiring the product are willing to pay. Then price goes down

price fixing

set prices for a product among firms. illegal under the sherman act. horizontal price fixing: 2+ competitors collude to explicitly or implicitly set prices vertical price fixing: controlling agreements between independent buyers and sellers whereby sellers are required to not sell products below a minimum retail price

target return on investment pricing

set prices to achieve a return on investment target such as percentage that is mandated by its BOD or managers

penetration price

setting a low initial price on a new product to appeal immediately to the mass market

flexible-price policy

setting different prices for products and services depending on individual buyers and purchase situations in light of demand, cost, and competitive factors

loss leader pricing

special promo retail store deliberately sell a product below its price to attract attention to it. not to increase sales but to attract customers in the hopes they will buy other products

barter

the price of exchanging products and services for other products and services rathe than for money

total cost

total expense incurred by a firm in producing and marketing a product. sum of fixed and variable costs

Total revenue

total money received from the sale of a product unite price X quantity sold

market price

what customers are generally willing to pay

inelastic demand

when a 1% decrease in price produces less than a 1% increase in quantity demanded, thereby actually decreasing total revenue