Smartbook: Chapter 13: Building the Price Foundation
In what ways must the price be "right"?
1. Customers must be willing to pay for it. 2. Must generate enough sales dollars to pay for the cost of developing, producing, and marketing the products 3. Must earn a profit for the company
The process of setting prices
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 6. Make special adjustments to list or quoted price
Factors that influence demand
1. consumer tastes 2. price and availability of similar products 3. consumer income
The types of most competitive to least competitive markets
1. pure competition: many sellers who follow the market price for identical, commodity products 2. monopolistic competition: many sellers who compere on non-price factors 3. Oligopoly: few sellers 4. pure monopoly: one seller
Price Constraints
Factors that limit the range of prices a firm may set.
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.
Unit Volume
The pricing objective based on the quantity of product sold by a firm
Total Cost (TC)
The total expense incurred by a firm in producing and marketing a product. TC = fixed cost + variable cost.
break-even point (BEP)
Total cost= total revenue FC/(P-UVC)
Which factor causes movement along a demand curve?
a change in the price of the good
Demand curve
a graph that relates the quantity sold and price, showing the maximum number of units that will be sold at a given price
break-even analysis
a technique that analyzes the relationship between total revenue and total cost to determine profitability at various levels of output
seller or retailer driven pricing actions
aggressive price changes through the internet
In the long run, a firm's ______ and those of its distributors set a baseline for a product's price, allowing the firm to both survive and get its product to consumers.
cost
Inelastic demand
exists when a 1 percent decrease in price produces less than a 1 percent increase in quantity demanded, thereby actually decreasing total revenue
Many Japanese car firms are willing to give up immediate profits for long-term penetration of the market. This is a pricing objective known as ______
managing for long-run profits
Target return
occurs when a firm sets a profit goal, usually determined by its board of directors
Which product is likely to be price inelastic?
open-heart surgery
Value
perceived benefits/price
price elasticity of demand (E)
percentage change in quantity demanded/percentage change in price
What element of the marketing mix has a unique role in that it is the place where all other business decisions come together?
price
Price Equation
price = list price - incentives and allowances + extra fees
A consumer's near-instantaneous access to competitors' prices for the same offering through the use of websites, apps, and smartphones is known as
price transparency
A pricing objective of increasing sales can have the disadvantage of leading to price cuts that may
reduce the revenues of related products in the firm's line
A maximizing current profit objective
such as for a quarter or year, is common in many firms because the targets can be set and performance measured quickly
Price (P)
the money or other considerations (including other products and services) exchanged for the ownership or use of a product or service
Why must a marketing manager consider pricing objectives and constraints?
to narrow the range of choices among the variety of pricing strategies
Profit equation
total revenue - total cost (unit price x quantity sold) - (fixed cost + variable cost)
Total Revenue
unit price x quantity sold
The pricing objective known as ______ can be counterproductive if it is achieved by drastic price cutting that drives down profit.
unit volume
Unit Variable Cost (UVC)
variable cost expressed on a per unit basis. UVC= VC/Q
Compared to other company objectives, the sales objective
can be translated more easily into meaningful targets for marketing managers
Elastic demand
exists when a 1 percent decrease in price produces more than a 1 percent increase in quantity demanded, thereby actually increasing total revenue
Firms often pursue ______ as a pricing objective when industry sales are relatively flat or declining.
market share
Market Share
the ratio of sales revenue of the firm to the total sales revenue of all firms in the industry, including the firm itself
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. examples: rent on the building, executive salaries, and insurance.
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. Example: the quantity sold doubles, the variable cost doubles
Consumer Driven Pricing Actions
they go to store check out what they want, go home and buy it for cheaper
