Marketing chapter 9

dynamic pricing

adjusting prices continually to meet the characteristics and needs of individual customers and situations ex. alaska airlines

good-value pricing

offering just the right combination of quality and good service at a fair price

B) value-a d d e d s t r a t e g i e s

3) When there is price competition, many companies adopt ________ rather than cutting prices to match competitors. A ) p r i c i n g p o w e r B) value-a d d e d s t r a t e g i e s C ) price elasticity D ) i m a g e p r i c i n g E) fixed costs

zone pricing

A geographical pricing strategy in which the company sets up two or more zones. All customers within a zone pay the same total price; the more distant the zone, the higher the price

price elasticity

A measure of the sensitivity of demand to changes in price

cost-plus pricing (markup pricing)

Adding a standard markup to the cost of the product. Markup pricing remains popular because sellers are more certain about costs than about demand. This method also keeps price competition down. The major downside is that the method ignores demand and competitors' prices.

value-added pricing

Attaching value-added features and services to differentiate a company's offers and charging higher prices

price fixing

ILLEGAL,an agreement among firms to charge one price for the same good

fixed costs (overhead)

Costs that do not vary with production or sales level. These costs include: rent, heat, interest.

C ) remain the same

Fixed costs ________ as the number of units produced increases. A ) increase B) divide in half C ) remain the same D ) increase at a diminishing rate E) decrease

E) revenue

Price is the only element in the marketing mix that produces ________. A ) outfixed costs B) expenses C ) stability D ) variable costs E) Revenue

target costing

Pricing that starts with an ideal selling price, then targets costs that will ensure that the price is met

segmented pricing

Selling a product or service at two or more prices, where the difference in prices is not based on differences in costs. --The market must be segmentable, and the segments must show different degrees of demand. --The costs of segmenting and watching the market cannot exceed the extra revenue obtained from the price difference. --The segmented pricing must also be legal. ex: Evian water

Marketing-skimming pricing (price skimming)

Setting a high price for a new product to skim maximum revenues layer by layer from the segments willing to pay the high price; the company makes fewer but more profitable sales. competitors should not be able to enter the market easily and undercut the high price.

Market-penetration pricing

Setting a low price for a new product in order to attract a large number of buyers and a large market share. --The market must be highly price sensitive so that a low price produces more market growth. --Production and distribution costs must fall as sales volume increases. --The low price must help keep out the competition, and the penetration pricer must maintain its low-price position—otherwise, the price advantage may be only temporary.

geographic pricing

Setting prices for customers located in different parts of the country or world

D) elastic; more

T h e l e s s _ _ _ _ _ _ _ _ t h e d e m a n d , t h e _ _ _ _ _ _ _ _ i t b e n e f i t s t h e s e l l e r t o r a i s e t h e p r i c e . A ) f o c u s e d ; m o r e B) concentrated; more C ) constant; more D ) elastic; more E) elastic; less

promotional pricing

Temporarily pricing products below the list price, and sometimes even below cost, to increase short-run sales. companies will temporarily price their products below list price and sometimes even below cost to create buying excitement and urgency. Constantly reduced prices can erode a brand's value in the eyes of customers. The frequent use of promotional pricing can also lead to industry price wars. Such price wars usually play into the hands of only one or a few competitors—those with the most efficient operations

Price

The amount of money charged for a product or service, or the sum of the values that customers exchange for the benefits of having or using the product or service

Experience curve (learning curve)

The drop in the average per-unit production cost that comes with accumulated production experience

Oligopolistic competition

The market consists of a few sellers who are highly sensitive to each other's pricing and marketing strategies. There are few sellers because it is difficult for new sellers to enter the market.

pure competition

The market consists of many buyers and sellers trading in a uniform commodity. No single buyer or seller has much effect on the going market price. In a ________ sellers do not spend much time on marketing strategy.

Pure monopoly

The market consists of one seller. The seller may be a government monopoly, a private regulated monopoly, or a private non-regulated monopoly.

price cuts

These circumstances include excess capacity, falling market share, or a plan to dominate the market through lower costs could lead to

E) good-value pricing

When McDonald's and other fast food restaurants offer "value menu" items at surprisingly low prices, they are using ________. A ) break-even pricing B) bundling C ) cost-p l u s p r i c i n g D ) target profit pricing E) good-value pricing

Inelastic

When changes in price have little or no effect on the amount demanded

demand curve

a curve that shows the number of units the market will buy in a given time period, at different prices that might be charged

FOB-origin pricing

a geographical pricing strategy in which goods are placed free on board a carrier; the customer pays the freight from the factory to the destination

uniform-delivered pricing

a geographical pricing strategy in which the company charges the same price plus freight to all customers, regardless of their location

basing-point pricing

a geographical pricing strategy in which the seller designates some city as a basing point and charges all customers the freight cost from that city to the customer.

frieght-absorption pricing

a geographical pricing strategy in which the seller pays all or part of the actual freight charges and does not pass them on to the buyer

economic conditions

can have a strong impact on the firm's pricing strategies. The company must also consider what impact its prices will have on other parties in its environment, such as resellers and the government

product bundle pricing

combining several products and offering the bundle at a reduced price. can promote the sales of products consumers might not otherwise buy, but the combined price must be low enough to get them to buy the bundle

variable costs

costs that vary directly with the level of production. Examples include packaging and raw materials.

price increase

include cost inflation and over demand. When a company cannot supply all that its customers need, it can raise prices, ration products to customers, or both can lead to

psychological pricing

pricing that considers the psychology of prices and not simply the economics; the price is used to say something about the product. For most purchases, consumers don't have all the skill or information they need to figure out whether they are paying a good price. They may rely on certain cues that signal whether a price is high or low. Even small differences in price can signal product differences.

captive product pricing

setting a price for products that must be used along with a main product, such as blades for a razor and games for a videogame console. Producers of the main products often price them low and set high markups on the supplies. In the case of services, this strategy is called two-part pricing. The price of the service is broken into a fixed fee plus a variable usage rate. The service firm must decide how much to charge for the basic service and how much for the variable usage. The fixed amount should be low enough to induce usage of the service; profit can be made on the variable fees.

customer value-based pricing

setting price based on buyers' perceptions of value rather than on the seller's cost

break-even pricing (target return pricing)

setting price to break even on the costs of making and marketing a product or setting price to make a target return. ______is the price at which total costs are equal to total revenue and there is no profit. ______ is the price at which the firm will break even or make the profit it's seeking.

competition-based pricing

setting prices based on competitors' strategies, prices, costs, and market offerings

cost-based pricing

setting prices based on the costs for producing, distributing, and selling the product plus a fair rate of return for effort and risk

Monopolistic competition

the market consists of many buyers and sellers who trade over a range of prices rather than a single market price. A range of prices occurs because sellers can differentiate their offers to buyers.

optional product pricing

the pricing of optional or accessory products along with a main product. The company has to decide which items to include in the base price and which to offer as options.

total costs

the sum of the fixed and variable costs for any given level of production