Chapter 10 Exam 2
Why do marketers use trade or functional discounts, quantity discounts, cash discounts, and seasonal discounts in pricing to members of the channel?
- in pricing for members of the channel, marketers recognize that retailers and wholesalers have costs to cover and profit targets to reach. Thus, they often begin with the list price and then use a number of trade or functional discounts to implement pricing to members of the channels of distribution. Quantity discounts are used to encourage buyers to buy larger quantities from a single seller. Cash discounts encourage customers to pay quickly, thus lowering the seller firm's need for cash. Seasonal discounts either encourages purchase off-season to lessen the manufacturer's need to warehouse product or encourage purchase in-season to counter competitive products
What is dynamic pricing? What is discriminatory pricing? What is the difference between the two?
-Dynamic pricing can occur when the price can easily be adjusted to meet changes in the marketplace. -Internet price discrimination is an internet pricing strategy that charges different prices to different customers for the same product. The internet allows consumers to quickly comparison shop for the very lowest price. Marketers maximize profits if they charge each customer the most that person is willing to pay. Placing customers into groups based on where they live, how close they are to the retailer or a competitor, the cost of doing business in the area, or their internet browsing history can greatly increase profits. Some sites even offer customers a discount if they use a mobile device
Explain how the demand curves for normal products and for prestige products differ. What are demand shifts and why are they important to marketers? How do firms go about estimating demand? How can marketers estimate the elasticity of demand?
-Normal products- demand curve slopes downward and to the right- as price goes up, demand does down. -Prestige products (luxury cars, jewelry)- demand curve slopes upward- an increase in price may actually result in an increase in the quantity demanded because consumers see the products as more valuable. -Demand shifts mean the quantity demanded a given price is greater (upward shift) or less (downward shift). Marketing activities such as a great ad campaign can cause an upward shift. Downward shifts may occur if a new technology is developed or other external factors. Marketers estimate demand by identifying the number of buyers or potential buyers for their product and then multiplying that estimate times the average amount each member of the target market is likely to purchase. Marketers often do research to determine demand at different prices, thus estimating demand. One type of research is to ask consumers how much they would buy at different prices. Marketers may also conduct field studies in which they vary the price of a product in different stores and measure how much is actually purchased.
What are trade margins? How do they relate to the pricing for a producer of goods?
A manufacturer sells to a wholesaler, distributor, or jobber who in turn sells to a retailer who finally sells the product to the ultimate consumer. Channels of distribution often vary in both the types and sizes of available intermediaries and in the availability of an infrastructure to facilitate product distribution. Often these differences can mean that trade margins will be higher as will the cost of getting the products to consumers.
Explain how unethical marketers might use bait-and-switch tactics, price-fixing, and predatory pricing. What is surge pricing?
Bait-and-switch- illegal marketing practice in which an advertised price special is used as bait to get customers into the store when the intention of switching them to a higher priced item price fixing-two+ companies conspire to keep prices at a certain level predatory pricing- the company sets a very low price for a purpose of driving the competition out of business. This tactic could lead to monopoly in the future. surge pricing- a company raises the price of its product as demand for that product goes up and then lowers it as demand goes back down.
What is break-even analysis?
Break-even analysis is a method for determining the number of units that will have to be produced and sold at a given price to break-even- that is, to neither make a profit nor suffer a loss. Help them establish and decide on the price for a product
Explain and give an example of cost-plus pricing, target costing, and yield management pricing
Cost-plus pricing means marketers total all the costs for the product then add an amount to arrive at the selling price Target costing occurs when a firm first determines the price at which customers would be willing to buy the product and then work backwards to design the product in such a way that it can produce and sell the product at a profit Yield management pricing is a pricing strategy used by airlines, hotels, and cruise lines. Firms charge different prices to different customers in order to manage capacity while maximizing revenues
Give an example of how the competitive environment influences prices. What about government regulation and consumer trends? What are some ways the global environment can influence a firm's pricing strategies?
Marketers will try to anticipate how the competition will respond to their pricing actions. They know that consumers' expectations of what constitutes a fair price largely depend on what the competition charges. It is not always a good idea to fight the competition with lower prices. Pricing wars such as those in the fast-food industry can change consumers' perceptions of what is a "fair" price, leaving them unwilling to buy at previous price levels. Governments in the US and other countries develop 2 different types of regulations, which have an effect on pricing. 1) large number of regulations increase the costs of production- regulations for health care, environmental protection, occupational safety, and highway safety cause the costs of producing many products to increase. 2) consumer trends can influence prices. Culture and demographics determine how consumers think and behave and so these factors have a large impact on all marketing decisions. The marketing environment often varies widely from country to country. This can have important consequences in developing pricing strategies. For products including most consumer goods, unique environmental factors in different countries mean marketers must adapt their pricing strategies
For new products, when is skimming pricing more appropriate, and when is penetration pricing the best strategy? When would trial pricing be an effective pricing strategy?
Skimming price works best when a product is highly desirable and offers unique benefits, demand is price inelastic during the introductory stage of the product life cycle and if the product provides some important benefits to the target market that make customers feel they must have the product no matter what it costs. In addition, there must be little chance that competitors can get into the market quickly. Penetration pricing is used to discourage competitors from entering the market and because of the low price may actually be a barrier to entry for competitors. With trial pricing a new product carries a low price for a limited period to attract the customer. The idea is to win customer acceptance first and make profits later.
Explain variable costs, fixed costs, average variable costs, average fixed costs, and average total costs
Variable costs- costs of production tied to ad vary depending on the number of units produced. Variable costs typically include raw materials, processed materials, component parts, and labor Fixed costs- costs of production that do not change with the number of units produced. Average variable costs- total spent on raw materials, labor, and so on divided by the number of items produced Average fixed costs- will decrease as the number of units produced increases. Divide fixed costs by the number produced Average total costs- total costs divided by the number of units produced
Describe and give examples of some of the following types of pricing objectives: profit, market share, competitive effect, customer satisfaction, and image enhancement
When pricing strategies are determined by profit objectives, the focus is on a target level of profit growth or a desired net profit margin. profit objective- important to firms that believe profit is what motivates shareholders and bankers to invest in a company. Market share- having a pricing strategy to maximize sales or to increase market share competitive effect- the pricing plan is intended to have a certain effect on the competition's marketing efforts Customer satisfaction- quality-focused firms believe that profits result from making customer satisfaction the primary objective. these firms believe that by focusing solely on short-term profits, a company loses sight of keeping customers for the long term. image enhancement- consumers use price to make inferences about the quality of a product. Marketers know that price is often an important means of communicating not only quality but also image to prospective customers.
Explain these psychological aspects of pricing: price-quality inferences, odd-even pricing, internal reference price, price lining, and prestige pricing
price quality inferences- use price as a cue or an indicator of quality. If consumers are unable to judge the quality of a product through examination or prior experience, they usually will assume that the higher-priced product is the higher-quality product odd-even pricing- assume there is a psychological response to odd prices that differs from the responses to even prices. Research on the difference in perceptions of off versus even prices supports the argument that prices ending in 99 rather than 00 lead to increased sales. internal reference price- consumers have a set price or a price range in their mind that they refer to in evaluating a products cost. The reference price may be the last price paid. It may also be the average of all the prices they know of similar products. Latitude of acceptance- prices that fall outside "acceptance range" change perceptions unfavorably price-lining- practice where items in a product line sell at different prices called price points prestige pricing- luxury goods marketers use this- people tend to buy more as the price goes up
What is price, and why is it important to a firm? What is digital currency, such as Bitcoin?
price- value that customers give up or exchange to obtain a desired product. Price not only brings revenue into the firm but it also matches competitive offerings and often establishes an image for the firm and its products. bitcoin- digital currency alternative. The bitcoin units are generated by open-source software, each additional Bitcoin can enter the system only after a sophisticated computer solves an encryption problem. This means there are only a very limited number of them around, so some people are trying to snatch them up. This digital currency is bought on Bitcoin exchanges, or purchased from mobile apps that store them in a "virtual wallet" Bitcoins are not controlled by the US treasury. transactions occur from person to person, so this opens the potential for bitcoins to show up in illegal transactions (laundering drug money)
Explain two-part pricing, payment pricing, price bundling, captive pricing, and distribution-based pricing tactics
two-part pricing- requires two separate types of payments to purchase the product. EX: cell phone company that offers customers a set number of minutes usage plus a per-minute rate for extra minutes used. Payment pricing- breaks up total price into smaller amounts payable over time, thus making the consumer think the price is "do-able". Payment pricing makes sense for a product that is high-priced, that consumers think as important, and that lasts a long time.EX: car. Price bundling- selling two+ goods or services as a single package for one price. EX: phone company offering cable services for tv and internet Captive pricing- two products that work only when used together. The firm sells one item at a very low price and then makes its profit on the second high-margin item. EX: razor and blade, neither individually is useful, but together they have great value. Distribution-based pricing- establishes how firms handle the cost of shipping products to customers near as well as far. FOB delivered pricing means the seller pays for the cost of loading and the cost of transporting the item to the customer
