MKTG 480 CH 11 Exam 3 (Final)

Discounts

direct, immediate reductions in price provided to purchasers

cash discounts

elicit quicker payment of invoices

Total costs

fixed + variable costs have to first calculate this to use target return pricing

Variable costs

fluctuate with volume

Reference pricing

gives the buyer a comparative price. ex: Store brands on the shelf next to national brands

disadvantages of price bundling

in some industries, it can become unclear just what the regular, or unbundled, price is for a given component of a package.

Fixed costs

incurred over time, regardless of volume

FOB-origin or FOB- factory pricing

indicates that the purchaser pays freight charges and takes title the moment the goods are placed on the truck or other transportation vehicle

FOB-destination

indicates that until the goods arrive at the purchaser's location, title doesn't change hands and freight charges are the responsibility of the seller customer pays to get on truck

Uniform delivered pricing

which the same delivery fee is charged to customers regardless of geographic location within the 48 contiguous states ex: Amazon Prime

Cost-plus pricing/Markup on Cost

a general heuristic that builds a price by adding a standardized markup on top of costs for an offering, hence the term markup on cost Cost-plus: $50 markup 100%=$100 Markup on cost: price is $100 markup 50%

Stability pricing

a neutral set point that doesn't irk competitors or endanger the value proposition. the firm tries to find a neutral set point that is neither too low to irritate the competition nor too high to risk the value proposition with customers.

value

a ratio of the bundle of benefits a customer receives from an offering compared to the costs incurred by the customer in acquiring that bundle of benefits.

Price bundling

allows customers to buy a package deal at a lower price than if items bought separately (e.g. cable TV, landline phone service, and Internet).

Odd/Even Pricing

*Odd*- has no whole dollars (e.g., $1.98 or $1.99). *Even*- only whole dollars (e.g. $2.00). Developed before sales tax and credit cards to bolster cash register security and reduce employee theft.

Captive pricing (complementary pricing)

- "razors and blades" like printers and ink cartridges. - in the service sector may be called two-part pricing

competitor-based pricing

- At the competitor's price or slightly above or below. - Price war occur when one competitor tries to gain sales and net market share.

profit maximization and target ROI

- Bottom-line profit is set and then price to meet the target profit. - Price elasticity of demand (e.g., Will consumers buy at the target ROI price?).

One-price Strategy

- The U.S. market is virtually all one-price with the exception of products like automobiles and real estate - there is no bargaining. Everyone pays the same for most goods in the United States

Variable Pricing

- automobile and real estate uses this - allows for haggling (bargaining) and is more common around the world.

Product line pricing

- price points reflect diff benefits at diff prices - Hotel rooms, autos, appliances or different brands like Ritz-Carlton, Marriott, Fairfield Inn, Courtyard.

Geographic Aspects of Pricing

-FOB Pricing -uniform delivered pricing -zone pricing

Average-cost pricing

Often pricing decisions are made by identifying all costs associated with an offering to come up with what the average cost of a single unit might be.

Target Return Pricing

To better take into account the differential impact of fixed and variable costs, marketing managers can use this

Penetration pricing

When a firm's objective is to gain as much market share as possible this is a likely pricing strategy also referred to as pricing or maximum marketing share

promotional allowances

Within a given channel, sellers often want purchasers to help execute their promotional strategies provided by the manufacturer

Markup on Sales Price

uses the sales price as a basis of calculating the markup percentage. This is because most important items on financial reports (gross sales, revenue, etc.) are sales, not cost, figures.

Prestige Pricing

Higher than the competition like luxury goods or ultra-premium products; leads to higher profits

Auction Pricing

More popular due to the Internet (e.g., eBay).

High/low pricing

uses heavy promotional pricing and customers wait for the best price.

Price war

occurs when a company purposefully makes pricing decisions to undercut one or more competitors and gain sales and net market share

Price

or more specifically the customer's perception of the offering's pricing—is a key determinant of perceived value.

Value pricing

overtly attempts to take into account the role of price as it reflects the bundle of benefits sought by the customer.

two-part pricing

pricing for firms that charge a monthly fee and then bills for specific services like a gym membership and personal trainer fees

Everyday low Pricing (EDLP)

promises consumers a low price without the need to wait for sale price events; reduces investment in promotion.

trade discounts (functional discounts)

provide an incentive to a channel member for performing some function in the channel that benefits seller. normally expressed as a percentage off the invoice price. ex: stocking a seller's product or performing a service related to that product, such as installation or repair, within the channel.

Allowances

remit monies to purchasers after the fact

seasonal discounts

reward the purchaser for shifting part of the inventory storage function away from the manufacturer. Firms often purchase seasonal products many months before the season begins

Reverse auction

sellers bid for the prices at which they are willing to sell their goods and services (e.g., Priceline)

Zone pricing

shippers set up geographic pricing zones based on the distance from the shipping location ex: 500 miles from Chicago = shipping $5 700 miles =$7

Generic Price-Quality Positioning Map

slide 11

Tactical Pricing Approaches

slide 12

Set the Exact Price

slide 18

Determine Channel Discounts and Allowances

slide 20

elements of managing pricing decisions diagram

slide 4

price skimming

slide 7

quantity discounts

taken off an invoice price based on different levels of product purchased the more they buy the cheaper it becomes may be offered on an order-by-order basis, in which case they are noncumulative, or they may be offered on a cumulative basis over time as an incentive to promote customer loyalty.

pricing objectives

the desired or expected result associated with a pricing strategy must be consistent with other marketing-related objectives (e.g., positioning and branding) as well as with the firm's overall objectives for doing business.

Market share

the percentage of total category sales accounted for by a firm

FOB (Free on Board) Pricing

title transfer and freight paid on the goods being shipped are based on the FOB location.