Chapter 19 Marketing
Promotional allowance
a price reduction granted to dealers for participating in advertising and sales support programs intended to increase sales of a particular item
4 methods to determine price
actual full cost, standard full cost, cost plus investment, and market-based cost
importance of price in marketing
almost anything of value can be assessed by price price has a psychological influence on customers
cost plus investment
calculated as full cost plus, the cost of a portion of the selling unit's assets used for internal needs
market-based cost
calculated at the market price less a small discount to reflect the lack of sales effort and other expenses
standard full cost
calculated based on what it would cost to produce the goods at full plant capacity
actual full cost
calculated by dividing all fixed and variable expenses for a period into the number of units produced
price discrimination
employing price differentials that injure competition by giving one or more buyers a competitive advantage
base-point pricing
geographic pricing that combines factory price and freight charges from the base point nearest the buyer
What you need to know for price and demand
if price increases demand goes down if price decreases demand goes up
Factors that Affect Pricing Decisions: Factor #7- Competition
A marketer needs to know competitors' prices so it can adjust its own prices accordingly
5 Categories of Price Discounting: Cash Discounts
A price reduction given to buyers for prompt payment or cash payment Ex.- 2/10 net 30
Seasonal Discount
A price reduction given to buyers for purchasing goods or services out of season
5 Categories of Price Discounting: Trade (functional) Discount
A reduction off the list price a producer gives to an intermediary for performing certain functions
Predatory pricing
Also called undercutting, involves the intent to set a product's price so low that rival firms cannot compete and therefore withdraw from the marketplace
Price Fixing
An agreement among competing firms to raise, lower, or maintain prices for mutual benefit
Why is breakeven important?
Because you are figuring out how many units until you make a profit
Value Consciousness
Concerned about price and quality of a product
Prestige Sensitivity
Drawn to products that signify prominence and status
Factors that Affect Pricing Decisions: Factor #1- Organizational and Marketing Objectives
Marketers should set prices that are consistent with the organization's goals and mission
Factors that affect Pricing Decisions
Organizational and Marketing objectives Pricing Objectives Costs Other Marketing Mix Variables Channel Member Expectations Customers' Interpretation and Response Competition Legal and Regulatory Issues
Zone pricing
Pricing based on transportation costs within major geographic zones
Factors that Affect Pricing Decisions: Factor #2- Types of Pricing Objectives-
Pricing objectives should be compatible with the firm's marketing objectives
Profit and Loss Statement (P&L)
Revenue (Price * units) TOP LINE -Cost of Goods Sold (direct cost) = Gross Profit - SG&A (Overhead- other expenses) = Net Profit BOTTOM LINE
Price Consciousness
Striving to pay low prices
Break even point
The point at which the costs of producing a product equal the revenue made from selling the product
Deceptive Pricing
The use of false or misleading statements or practices to persuade buyers that a product is a better deal than it really is
5 Categories of Price Discounting
Trade, quantity, cash, seasonal, and allowance
Factors that Affect Pricing Decisions: Factors #5- Channel Member Expectations
When making price decisions, a producer must consider what members of the distribution channel except, such as discounts for large orders, prompt payment, and support activities such as sales training and sales promotion.
Factors that Affect Pricing Decisions: Factor #6- Customers' Interpretation and Response
When making pricing decisions, marketers should address a vital question: How will our customers interpret our prices and respond to them?
Who wins in a price war?
Whoever can make the product the cheapest
External reference price
a comparison price provided by others
Allowances
a concession in price to achieve a desired goal
Factors that Affect Pricing Decisions: Factor #3- Costs
a marketer should be careful to analyze all costs so they can be included in the total cost associated with a product
internal reference price
a price developed in the buyer's mind through experience with the product
FOB (free on board) destination
a price indicating the producer is absorbing shipping costs buyer takes delivery of goods being shipped to it by a supplier once the goods arrive at the buyer's receiving dock
Freight absorption buying
absorption of all or part of actual freight costs by the seller
Factors that can influence demand
changes in buyers' needs variations in the effectiveness of other marketing-mix variables the presence of substitutes dynamic environment
uniform geographic pricing
charging all customers the same price, regardless of geographic location
5 Categories of Price Discounting: Quantity Discounts
deductions from the list price for purchasing in large quantities
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
Price War
involves two or more companies engaging in intense price competition- in an effort to boost market share
noncumulative discounts
one-time price reductions based on the number of units purchased, the dollar value of the order, or the product mix purchased
trade-in allowance
price reductions granted for turning in a used item when purchasing a new one
Transfer pricing
prices charges in sales between organization's units
Factors that Affect Pricing Decisions: Factor #4- Other Marketing Mix Variables
pricing decisions can influence product, people, promotion, and place
Cumulative Discounts
quantity discounts aggregated over a stated time period
FOB (free on board) factory
the price of merchandise at the factory before shipment
Barter
the trading of products It is the oldest form of exchange
Price
the value paid for a product in a marketing exchange
Interpretation
what the price means or what it communicates to customers
Geographic Pricing
reductions for transportation and other costs related to the physical distance between buyer and seller
Customer response
refers to whether the price will move customers closer to purchase of the product and the degree to which the price enhances their satisfaction with the purchase experience and with the product after purchase