Chapter 20

A marketer sometimes uses temporary price reductions

-increase market share -raise cash quickly

price elasticity of demand.

A measure of sensitivity of demand in relation to changes in price is percent change in quantity demanded/ percent change in demand

internal reference price

A price developed in the consumer's mind through experience with the product

price decisions

Competition Channel member expectations Legal and regulatory issues Cost

prestige product

It forms a curve where the greatest quantity sold comes at a medium price and the quantities fall as the price increases or decreases.

perfect competition

Marketers have no flexibility in setting prices under conditions of

response

The degree to which the price of a product enhances a customer's satisfaction with the purchase experience and with the product after the purchase is part of their

interpretation

What a price means or what it communicates to customers

external reference price

a comparison price provided by others -customer is considering the purchase of a product in a less-familiar product category, that individual is likely to rely more heavily

allowance

a concessional in price to achieve a desired goal

demand curve

a graph of the quantity of products expected to be sold at various prices if other factors remain constant -downward sloping -price goes up, quantity demand goes down -inverse relationship between price and quantity demand

F.O.B. destination

a price indicating the producer is absorbing shipping cost

F.O.B. factory

a price of merch. at the factory before shipping

cash discount

a price reduction given to buyers for prompt payment or cash payment

seasonal discount

a price reduction given to buyers for purchasing goods or services out of season

trade (functional) discount

a reduction off the list price a producer gives to an intermediary for preforming certain functions

freight absorption pricing

absorption of all or part of actual freight cost by the seller

average total cost is at its lowest level.

average total cost = marginal cost

cost plus investment (transfer pricing)

calculated as full cost plus the cost of a portion of the selling units assets used for internal needs

market based cost (transfer pricing)

calculated at the market price less a small discount to reflect the lack of sales effort and other expenses

standard full cost (transfer pricing)

calculated based on what it would cos to product the goods at full plant capacity

Actual full cost (transfer pricing)

calculated by dividing all fixed and variable expenses for a period into the number of units produced

uniform geographic pricing

charging all customers the same price regardless of location

value conscious

concerned about price and quality of a product

fixed cost

cost that do not vary with changes in the number of units produced or sold

variable cost

cost that vary directly with changes in the number of unit sold

Both the Federal Trade Commission Act and the Wheeler-Lea Act prohibit

deceptive pricing

quality discounts

deductions from the list price for purchasing

prestige sensitive

drawn to products that signify prominence and status

nonprice competition

emphasizing factors other than price to distinguish a product from competing brands -firm can build customer loyalty

cost

minimum price a product can be sold for

elastic demand--- inelastic

more horizontal more vertical

Barter

oldest form of exchange- trading products

noncumulative discounts

one time price reductions based on the number of units purchased the dollar value of the order or the product mix purchased

transfer pricing

prices charged in sales between an organization's units

zone pricing

pricing based on transportation cost within major geographic zones

The perception of price depends on a

product's actual price and consumers' expectations regarding price.

Robinson-Patman Act

prohibits price discrimination that lessens competition among wholesalers and retailers

price conscious

striving to pay low prices

marginal revenue (MR)

the change in total revenue resulting from the sale of an additional unit of product

marginal cost (MC)

the extra cost incurred by producing one more unit of a product

average fixed cost

the fixed cost per unit sold

breakeven point

the money a company brings in from selling products equals the amount spent producing the pro -It relies on demand for a product being inelastic.

average total cost

the sum of the average fixed cost and the average variable cost

Generally, customers are most likely to rely on the price-quality association when

they cannot judge the quality of the product for themselves

Monopolies usually keep their prices at a level that generate a reasonable, but not excessive, return primarily because

they want to avoid government regulations on their pricing

If a product has an inelastic demand and the manufacturer raises its price

total revenue will increase

terms for the concept of price

tuition, fee, premium, retainer, dues

A company trying to position itself as value oriented should not

use premium pricing for its products.

relationships between price and profit

(Price × Quantity Sold) - Total Costs = Profits

price discrimination

If a company provides price differentials that harm competition by giving one or more buyers a competitive advantage

Price competition

emphasizing price as an issue and matching or beating competitors prices - can result in a price war

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

c-shaped demand curve

high end goods

Robinson Patman and the Clayton act

limit the use of price differentials

At what point does a firm maximize profit?

marginal cost = marginal revenue -stop producing additional units to maximize profits

Sherman Antitrust Act

prohibits price fixing among firms in an industry

cumulative discounts

quantity discounts aggregated over a stated time period

geographic pricing

reductions for transportation and other cost related to the physical distance between buyer and seller

Price

value that is exchanged for products in a marketing transaction -most flexible variable in the product mix -relates directly to the generation of total revenue

Marginal analysis involves examining

what happens to a firm's costs and revenues when production is changed by one unit.

The amount of profit a channel member expects depends on

what the intermediary could earn if it were handling a competing product instead.