Marketing Ch. 13

Survival

profits, sales, and market share are less important objectives of the firm than mere survival

A maximizing current profit objective

such as for a quarter or year, it is common in many firms because the targets can be set and performance measured quickly

Average Revenue

the average amount of money received for selling one unit of a product, or simply the price of that unit; AR= (TR/Q)=P

Marginal Cost

the change in total cost that results from producing and marketing one additional unit of a product; MC= change in TC/ 1 unit increase in Q=slope of TC curve

Marginal Revenue

the change in total revenue that results from producing and marketing one additional unit of a product; MR= (Change in TR/ 1 unit increase in Q) = slope of TR curve

Price

the money or other considerations exchanged for the ownership or use of a product or service

Newness of the Product

the newer a product and the earlier it is in its life cycle, the higher the price than can be set

Demand for the Product Class, Product, and Brand

the number of potenital buyers for the product class (cars), product group (family sedans) and specific brand (toyota camry V6) clearly affects the price a seller can charge; greater the demand the higher the price can be set

Price Elasticity of Demand

the percentage change in quantity demanded relative to a percentage change in price; measures how sensitive consumer demand and the firm's revenues are to changes in the product's price; (E)= (percentage change in quantity demanded/ percentage change in price)

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

Break-even point

the quantity at which total revenue and total cost are equal; BEP quantity= Fixed cost/ (unit price - unit variable cost) FC/ (P - UVC)

Unit Volume

the quantity produced or sold; these firms often sell multiple products at very different prices

Value

the ratio of perceived benefits to price [ Value = (Perceived benefits/ Price)]

Market Share

the ratio of the firm's sales revenues or unit sales to those of the industry (competitors plus the firm itself); companies often pursue a market share objective when industry sales are relatively flat or declining

Dynamic Pricing

the seller changes prices in response to its existing inventory and the prices of competitors; this can damage their relationships with customers, particularly those who unfortunately paid top dollar for items that could have been purchased for less

Fixed Cost

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

the sum of the expenses of the firm that vary directly with the quantity of a product that is produced and sold; TC= FC + VC

Total cost

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

Total Revenue

the total money received from the sale of a product: TR= P (product) X Q (quanity)

Five cost concepts in pricing decisions:

total cost (TC), fixed cost (FC), variable cost (VC), unit variable cost (UVC), marginal cost (MC)

Demand Curves lead to three related revenue concepts critical to pricing decisions:

total revenue (TR), average revenue (AR), and Marginal Revenue (MR)

Unit Variable Cost

variable cost expressed on a per unit basis for a product: UVC= VC/Q

Consumer-Driven Pricing Actions

with consumers able to compare prices on the Internet, they can make more efficient buying decisions

Other three factors that influence demand

1) consumer tastes 2) price and availability of similar products 3) consumer income first two influence what consumers want to buy, third factor affects what they can buy

Competitors' prices are important only if a prospective buyer both:

1) knows about those prices and 2) can act to purchase them easily

Six Steps in Setting Price

1. Identifying 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

Final Price equation

Final Price= [List Price] - [(Incentives) + (Allowances)] + [Extra fees]

Profit Equation

Profit= Total revenue- total cost = (Unit Price X Quantity Sold) - (Fixed Cost + Variable Cost)

Price transparency

a consumer's near-instantaneous access to competitors' prices for the same offering

social responsibility

a firm may forgo higher profit on sales and follow a pricing objective that recognizes its obligations to customers and society in general

Competitors' Prices and Consumers' Awareness of Them

a firm must know what sepcific prices its present and potential competitors are charging now as well as what they are likely to charge in the near future

Demand Curve

a graph that relates the qunaitity sold and price, showing the maximum number of units that will be sold at a given price

Break-even chart

a graphic presentation of the break-even analysis;

Break-even analysis

a technique that analyzes the relationship between total revenue and total cost to determine profitability at various levels of output

Seller/Retailer- Driven Pricing Actions

aggressive price changes through the Internet started in 1990's when airlines constantly changed ticket prices to fill seats

Price Equation

all the factors that increase or decrease the final price of an offering

Costs of Producing and Marketing the Product

another profit consideration for marketers is to ensure that firms in their channels of distribution make an adequate profit

A managing for long-run profits objective (for pricing strategy)

companies give up immediate profit by developing quality products to pentrate competitive markets over the long term

marginal analysis

continuing, concise trade-off of incremental costs against incremental revenues; as long as the revenue received from the sale of an additional unit of a product (marginal revenue) is greater than the additional costs of producing and selling it (marginal cost), a firm will expand its output of that product

Price must be right, meaning?

customers must be willing to pay it; it must generate enough sales dollars to pay for the cost of developing, producing, and marketing the product; and it must earn a profit for the company

Reference Values

emerges through the process of comparing the costs and benefits of substitute items that satisfy the same need

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; price inelasticity that is less than 1 with inelastic demand

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

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

Flash Sales

involve cutting prices for only a few hours so consumers don't have time to calculate the size of the deal they are getting

Pricing Objectives

involve specifying the role of price in an organization's marketing and strategic plans; carried to lower levels in the organization, such as setting objectives for marketing managers responsible for an individual brand

Profit

measured in terms of return on investment (ROI) or return on assets (ROA)

A target return objective

occurs when a firm sets a profit goal, usually determined by its board of directors