Chapter 11 Marketing Test 3 review

Competition-Oriented pricing

- Customary pricing - Above, at, or below market pricing - Loss leader pricing

Demand-Oriented Pricing

- Skimming Pricing - Penetration Pricing - Prestige Pricing - Price lining - Odd-even pricing - Target pricing - Bundle Pricing - Yield management pricing

Cost-Oriented Pricing

- Standard markup pricing - Cost-plus pricing - Experience curve pricing

Profit-Oriented Pricing

- Target profit pricing - Target return on sales pricing - Target return on investment pricing

1 - Select an approximate price level 2 - Set the list or quotes price 3 - Make special adjustments to the list of quotes price

3 steps in setting a final price

Total Revenue

= the unit price times the quantity sold. Total money received from the sale of a product.

Price Fixing

A conspiracy among firms to set prices for a product. This is illegal under the Sherman Act. Ex, 6 foreign vitamin companies recently pled guilty for price fixing in the human and animal vitamin industry and paid the largest fine in U.S History.

Trade-in allowance Ex.

A new car dealer can offer a substantial reduction in the list price of that new toyota camry by offering you a trade in allowance of 2500 for your chevy

Trade-in allowances

A price reduction given when a used product is part of the payment on a new products. This is an effective way to lower the price a buyer has to pay without formally reducing the list price

Break-even analysis

A technique that analyzes the relationship between total revenue and total cost to determine profitability at various levels of output.

One Price policy

Also calle fixed pricing, is setting one price for all buyers of a product or service. Ex, CarMax uses this approach in its stores and features a no haggle one price for cars.

The price paid for products and services goes by many names. You pay tuition for your education, rent for an apartment, interest on a bank credit card, and a premium for car insurance. Your dentist or physician charges you a fee, a professional or social organization charges dues, and airlines charge a fare. In business, an executive is given a salary, a salesperson receives a commission, and a worker is paid a wage. And what you pay for clothes or a haircut is termed a price.

Different names for price

Seasonal Discounts

Encourage buyers to stock inventory earlier than their normal demand would require, manufacturers often use seasonal discounts.

Unit Cariable cost

Expressed on a per unit basis, or UVC=VC/Q

Pricing Constraints

Factors that limit the range of prices a firm may set

Total Cost

Fixed cost + Variable cost

Demand-Oriented Pricing. Cost-Oriented Pricing. Profit-Oriented Pricing. Competition-Oriented Pricing.

Four approaches for selecting an approximate price level

Value Ex.

If you're used to paying $7.99 for a medium frozen cheese pizza, wouldn't a large one at the same price be more valuable? Conversely, for a given price, value decreases when perceived benefits decrease

Pricing Objectives

Invovles specifying the role of price in an organizations marketing and strategic plans. Ex, H.J. Heinz has specific pricing objectives for its Heinz Ketchup brand that vary by country

Predatory pricing

Is the practice of charging a very low price for a product with the intent of driving competitors out of business. Once driven out, the firm raises its prices.

Break even calculation

Let's assume demand for your pictures is strong, so the average price customers are willing to pay for each picture is $120. Also, suppose your fixed cost (FC) is $32,000 (real estate taxes, interest on a bank loan, etc.) and unit variable cost (UVC) for a picture is now $40 (labor, glass, frame, and matting). Your break-even quantity (BEP) is 400 pictures, as follows:

Deceptive pricing

Price deals that mislead consumers. This is outlawed by the federal trade commission. This occurs when a firm offers a very low price on a product (the bait) to attract customers to a store. Once in the store, the customer is persuaded to purchase a higher priced item (the switch) using a variety of tricks

- Demand for the product class, product, and brand - Newness of the product - Cost of producing and marketing the product - Competitors prices - Legal and ethical considerations

Pricing Constraint factors

Discounts

Reductions from list price that a seller gives a buyer as a reward for some activities of the buyer that is favorable to the seller. Quantity, Seasonal, Trade and cash.

Conceptual Orientation to pricing

Review Table in Powerpoint

Promotional allowances

Sellers in the channel of distribution can qualify for promotional allowances for undertaking certain advertising or selling activities to promote a product

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. Ex, Dell uses this as it continually adjusts prices in response to changes in its own costs, competitive pressures, and demand from its various personal computer segments

Demand Curve

Shows a maximum number of units consumers will demand/buy at a given price

Price

The money or other consideration (Including other goods and services) exchanged for the ownership or use of a good or service

Price elasticity of demand

The percentage change in quantity demanded relative to a percentage change in price. It is equal to % change in quantity demand divided by % change in price.

Price Discrimination

The practice of charging different prices to different buyers for goods of like grade and quality. The Clayton Act amended by the Robinson Patman Act prohibit this.

Break-even point

The quantity at which total revenue and total cost are equal. Profit then comes from all units sold beyond the BEP = Fixed cost divided by unit price minus unit variable cost.

Value

The ratio of perceived benefits to price, or Vallue= Perceived benefits/price.

Fixed Cost

The same of the expenses of the firm that are stable and do not change with the quantity of a product that is produced and sold. Ex, rent of the building, executive salaries and insurance

Variable Cost

The same of the expenses of the firm that vary directly with the quantity of a product that is produced and sold. Ex, the quantity sold doubles, the variable cost double

Total Cost

The total expense incurred by a firm in producing and marketing a product.

Quantity discounts

To encourage customers to buy larger quantities of a product. Ex, An instant photocopying service might set a price of 10 cents a copy for 1 to 24 copies, 9 cents a copy for 25 to 99 copies and 8 cents a copy for 100 copies or more.

Cash Discounts

To encourage retailers to pay their bills quickly. These are typically expressed as a percentage off the list price

Trade (functional) Discounts

To reward wholesalers and retailers for marketing functions they will perform in the future, a manufacturer of gives trade, or functional, discounts.

Seasonal Discount Ex.

Toro that manufactures lawn mowers and snow throwers offers seasonal discounts to encourage wholesalers and retailers to stock up on loan mowers in the respective months

Profit

Total Revenue - Total Cost

Total Revenue

Unity price x Quantity sold

Inelastic Demand

When a 1 percent decrease in price produces less than a 1 percent increase in quantity demanded, thereby decreasing total revenue.

Elastic Demand

When a 1 percent decrease in price produces more than a 1 percent increase in demanded, thereby actually increasing total revenue

Allowances

like discounts, are reductions from list or quoted prices to buyers for performing some activities