Marketing Kerin Chapter 13 downloaded

There are six steps in setting price:

(1) identify pricing objectives and constraints; (2) estimate demand and revenue; (3) determine cost, volume, and profit relationships; (4) select an approximate price level; (5) set list or quoted price; and (6) make special adjustments to the list or quoted price.

If competitive market circumstances are such that there is some leader-follower price competition, some product differentiation, and the purpose of advertising is to inform, but avoid price competition, then __________ must exist in the industry.

A pure monopoly. The few sellers in an oligopoly try to avoid price competition because it can lead to disastrous price wars in which all lose money. Yet, firms in such industries stay aware of a competitor's price cuts or increases and may follow suit. The products can be undifferentiated or differentiated, and informative advertising that avoids head-to-head price competition is used.

When General Mills divides the sales revenue of its breakfast cereals in a single year by the total breakfast cereal sales of all its competitors plus its own for that same year, it is calculating its

Market Share. Market share is the ratio of a firm's sales revenues or unit sales to those of the industry (competitors plus the firm itself).

Describe what price elasticity of demand means to a manager facing a pricing decision.

Price elasticity of demand measures the responsiveness of units of a product sold to a change in price, which is expressed as the percentage change in the quantity of a product demanded divided by the percentage change in price. Price elasticity is important to marketing managers because a change in price usually has an important effect on the number of units of the product sold and on total revenue.

What is total revenue and how is it calculated?

Total Revenue (TR) is the total money received from the side of product. Total revenue equals the product's unit price (P) times the quantity sold (Q). P x Q = TR

demand factors

factors that determine consumers' willingness and ability to pay for products and services.

pricing constraints

factors that limit the range of prices a firm may set.

profit equation

profit = total revenue - total cost or profit = (unit price x quantity sold) - (fixed cost + variable cost)

pricing objectives

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

barter

the practice of exchanging products and services for other products and services rather than for money.

value-pricing

the practice of simultaneously increasing product and service benefits while maintaining or decreasing price.

Explain the role of costs in pricing decisions.

Five important costs impact a firm's pricing decisions: ( a) total cost, or total expenses, the sum of fixed cost and variable cost incurred by a firm in producing and marketing a product; (b) fixed cost, the sum of expenses of the firm that are stable and do not change with the quantity of a product that is produced and sold; (c) variable cost, the sum of expenses of the firm that vary directly with the quantity of a product that is produced and sold; (d) unit variable cost, variable cost expressed on a per unit basis; and (e) marginal cost, the change in total cost that results from producing and marketing one additional unit of the product.

How does the type of competitive market a firm is in affect its range in setting price?

In a market characterized by pure competition, the marketplace determines the price an individual firm can set. In a market characterized by monopolistic competition, there is some price competition among firms, which allows an individual firm to set a price within a range of prices. In an oligopoly, a firm may either be a price follower and set a price based on the prices set by its competitors to avoid a price war. In a pure monopoly, the firm, being the only one in the market, can set any price it wants.

What factors impact the list price to determine the final price?

Incentives, such as cash discounts, allowances, and rebates, as well as extra fees or surcharges.

What is price?

Price is the money or other considerations (including other products and services) exchanged for the ownership or use of a product or service.

price

Price is the money or other considerations (including other products and services) exchanged for the ownership or use of a product or service.

Identify the elements that make up a price.

Price is the money or other considerations (such as barter)exchanged for the ownership or use of a good or service. Although price typically involves money, the amount exchanged is often different from the list or quoted price because of incentives (rebates, discounts, etc.), allowances (trade), and extra fees(finance charges, surcharges, etc.).

What is the difference between pricing objectives and pricing constraints?

Pricing objectives involve specifying the role of price in an organization's marketing and strategic plans whereas pricing constraints are factors that limit the range of prices a firm may set.

Recognize the objectives a firm has in setting prices and the constraints that restrict the range of prices a firm can charge.

Pricing objectives specify the role of price in a firm's marketing strategy and may include profit, sales revenue, market share, unit volume, survival, or some socially responsible price level. Pricing constraints that restrict a firm's pricing flexibility include demand, product newness, other products sold by the firm, production and marketing costs, cost of price changes, type of competitive market, and the prices of competitive substitutes.

value

the ratio of perceived benefits to price; or value = (perceived benefits/price)

fixed cost (fc)

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

variable cost (vc)

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

total cost (tc)

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

total revenue (tr)

the total money received from the sale of a product.