Marketing - 3.4 Pricing Strategies and Customer Value

Reverse auction:

If the buyer not only lists what he or she wants to buy but also states how much he or she is willing to pay. Finished when at least one firm is willing to accept the buyer's price.

Total costs:

Include both fixed costs and variable costs.

Quantity discounts:

Involves giving customers discounts for larger purchases.

Leader pricing:

Involves pricing one or more items low to get people into a store. The products with low prices are often on the front page of store ads and "lead" the promotion.

Pricing objectives:

What does the company want to accomplish with its pricing? Companies must also estimate demand for the product or service, determine the costs, and analyze all factors (e.g., competition, regulations, and economy) affecting price decisions.

Forward auction:

When a buyer lists what he or she wants to buy, sellers may submit bids.

Price elastic:

When consumers are very sensitive to the price change of a product—that is, they buy more of it at low prices and less of it at high prices—the demand for it is ___. Durable goods such as TVs, stereos, and freezers are more price elastic than necessities.

Price inelastic:

When the demand for a product stays relatively the same and buyers are not sensitive to changes in its price, the demand is ___. Demand for essential products such as many basic food and first-aid products is not as affected by price changes as demand for many nonessential goods.

Bounce back:

A promotion in which a seller gives customers discount cards or coupons after purchasing. Consumers can then use the cards and coupons on their next shopping visits.

Captive pricing:

A strategy firms use when consumers must buy a given product because they are at a certain event or location or they need a particular product because no substitutes will work. Concessions at a sporting event or a movie provide examples.

Penetration Pricing Strategy:

A strategy in which a low initial price is set.

Predatory pricing:

A strategy that when companies act in a predatory manner by setting low prices to drive competitors out of business.

Reciprocal agreements:

Agreements in which merchants agree to promote each other to customers. Customers who patronize a particular retailer might get a discount card to use at a certain restaurant, and customers who go to a restaurant might get a discount card to use at a specific retailer.

Payment pricing:

Allowing customers to pay for products in installments, is a strategy that helps customers break up their payments into smaller amounts, which can make them more inclined to buy higher-priced products.

Uniform-delivered pricing:

Also called postage-stamp pricing, means buyers pay the same shipping charges regardless of where they are located.

Fixed costs:

Also known as overhead expenses, are costs that a company must pay regardless of its level of production or level of sales. A company's fixed costs include items such as rent, leasing fees for equipment, contracted advertising costs, and insurance.

Markup:

An amount added to the cost of a product.

Unfair Trade Laws:

By requiring sellers to keep a minimum price level for similar products, ___ protect smaller businesses. ___ are state laws preventing large businesses from selling products below cost (as loss leaders) to attract customers to the store.

Price adjustments:

Changing the listed prices of their products. Common ones include: quantity discounts for larger purchases, discounts for paying cash, and seasonal discounts to get rid of inventory.

Price discrimination:

Charging different customers different prices for the same product, in some situations, ___ is legal. the discounts Must be offered to all.

Price lining:

Common price levels. In other words, there may be only a few price levels, but a large assortment of them at each level. Movies and music often use ___. You may see a lot of movies and CDs for $15.99, $9.99, and perhaps $4.99, but you won't see a lot of different price levels.

Demand backward pricing:

Companies start with the price demanded by consumers (what they want to pay) and create offerings at that price. $5 or $10 tables. Ex: IKEA also sets a price for a product—which is what the company believes consumers want to pay for it—and then, working backward from the price, designs the product.

Variable costs:

Costs that change with a company's level of production and sales. Raw materials, labor, and commissions on units sold are examples.

Trade allowances:

For example, a manufacturer might give a retail store an advertising allowance to advertise the manufacturer's products in local newspapers. Similarly, a manufacturer might offer a store a discount to restock the manufacturer's products on store shelves rather than having its own representatives restock the items.

Loss leaders:

Items priced below cost in an effort to get people into stores... are illegal in many states.

Robinson-Patman Act:

Limits a seller's ability to charge different customers different prices for the same products. The intent of the ___ is to protect small businesses from larger businesses that try to extract special discounts and deals for themselves in order to eliminate their competitors.

FOB (free on board) destination:

Means the title changes at the destination—that is, after the product is transported—and the seller pays the shipping charges.

FOB (free on board) origin:

Means the title changes at the origin—that is, when the product is purchased—and the buyer pays the shipping charges.

Two-part pricing:

Means there are two different charges customers pay. In the case of a cell phone, a customer might pay a charge for one service such as a thousand minutes, and then pay a separate charge for each minute over one thousand.

Bait and switch (bait advertising):

Occurs when a business tries to lure in customers with an incredibly low-priced product. Once customers take the bait, sales personnel attempt to sell them more expensive products. Sometimes the customers are told the cheaper product is no longer available.

Odd-even pricing:

Occurs when a company prices a product a few cents or a few dollars below the next dollar amount. For example, instead of being priced $10.00, a product will be priced at $9.99.

Prestige pricing:

Occurs when a higher price is utilized to give an offering a high-quality image. Some stores have a quality image, and people perceive that perhaps the products from those stores are of higher quality.

Going-rate pricing:

Occurs when buyers pay the same price regardless of where they buy the product or from whom. ___ is often used on commodity products such as wheat, gold, or silver.

Price bundling:

Occurs when different offerings are sold together at a price that's typically lower than the total price a customer would pay by buying each offering separately. Combo meals and value meals are examples.

Price fixing:

Occurs when firms get together and agree to charge the same prices, is illegal. Usually, ___ involves setting high prices so consumers must pay a high price regardless of where they purchase a good or service.

Price elasticity:

People's sensitivity to price changes.

Product mix pricing:

Pricing products consumers use together (such as blades and razors) with different profit margins is also part of ___.

Promotional pricing:

Short-term tactic designed to get people into a store or to purchase more of a product. Examples include back-to-school sales, rebates, extended warranties, and going-out-of-business sales.

Status quo:

Simply meet, or equal, its competitors' prices or keep its current prices.

Online auction:

Sites such as eBay give customers the chance to bid and negotiate prices with sellers until an acceptable price is agreed upon.

Cost-plus pricing:

Taking the cost of the product and then add a profit to determine a price. ___ is very common. The strategy helps ensure that a company's products' costs are covered and the firm earns a certain amount of profit.

Breakeven point (BEP):

The point at which a company's total costs equal total revenue.

Everyday low prices:

The price initially set is the price the seller expects to charge throughout the product's life cycle. Companies like Walmart and Lowe's use ___.

Sealed bid pricing:

The process of offering to buy or sell products at prices designated in sealed bids. Companies must submit their bids by a certain time.

Markdowns:

These price reductions should be considered when deciding on a starting price.