MKT: Ch. 12

What are the three steps in setting a final price?

(1) Selecting an approximate price level, (2) Set the list or quoted price, (3) Make special adjustments to the list or quoted price.

What is break-even point?

A break-even point (BEP) is the quantity at which total revenue and total cost are even.

Demand Curve

A graph relating the quantity sold and the price, which shows how many units will be sold at a given price.

Break-even analysis

A technique that examines the relationship between total revenue and total cost to determine profitability at different levels of output. **BEP= FC/(P - UVC)

Explain what bait and switch is and why it is an example of deceptive pricing?

Bait and switch is the practice of offering a very low price on a product (the bait) to attract customers to a store. Once in the store, the customer is persuaded to purchase a higher priced item (the switch) using a variety of tricks, including (1) degrading the promoted item and (2) not having the promised item in stock or refusing to take orders for the item.

What are three key factors when estimating consumer demand?

Consumer taste, price and availability of similar products, and consumer income.

Pricing objectives

Expectations that specify the role of price in an organization's marketing and strategic plans.

Pricing Constraints

Factors that limit the range of prices a firm may set.

What is the difference b/t fixed cost and variable cost?

Fixed cost is the sum of the expenses of the firm that are stable and do not change with the quantity of the product that is produced and sold. Variable cost is the sum of the expenses of the firm that vary directly with the quantity of the product that is produced and sold.

What is the difference between pricing objectives and pricing constraints?

Pricing objectives specify the role of price in an organization's marketing and strategic plans. Pricing constraints are factors that limit the range of prices a firm may set.

Profit Equation

Profit= Total Revenue - Total cost.

What is the purpose of (a) quantity discounts and (b) promotional allowances?

Quantity discounts are used to encourage customers to buy larger quantities of a product. Promotional allowances are used to encourage sellers in the channel of distribution to undertake advertising or selling activiies to promote a product.

What are the circumstances in pricing a new product that might support skimming or penetration pricing?

Skimming pricing is an effective strategy when (1) enough prospective customers are willing to buy the product immediately at the high initial price to make these sales profitable, (2) the high initial price will not attract competitors, (3) lowering the price has only a minor effect on increasing sales volume and reducing the unit cost, and (4) customers interpret the high price as signifying high quality. These four conditions are most likely to exist when the new product is protected by patents or copyrights or its uniqueness is understood and valued by customers. The conditions favoring penetration pricing are the reverse of those supporting skimming pricing: (1) many segments of the market are price sensitive, (2) a low initial price discourages competitors from entering the market, and (3) unit production and marketing cost fall dramatically as production volumes increase.

Total Revenue

The total money received from the sale of a product; the unit price of a product multiplied by the quantity sold. TR= P x Q

Price

The money or other considerations (including other products and services) exchanged for the ownership or use of a product or service.

Price elasticity of demand

The percentage change in the quantity demanded relative to a percentage change in price.

Price elasticity of demand is ________.

The percentage change in the quantity demanded relative to a percentage change in price.

Value

The ratio of perceived benefits to price.

Total Cost

The total expenses incurred by a firm and producing and marketing a product; total cost is the sum of fixed cost and variable cost.

Value is _______.

the ratio of perceived benefits to price.