MKT Ch9

Demand curve

A curve that shows the number of units the market will buy in a given time period, at different prices that might be charged.

Price elasticity

A measure of the sensitivity of demand to changes in price. If demand hardly changes with a small change in price, the demand is inelastic. If demand changes greatly, the demand is elastic.

Discount

A straight reduction in price on purchases during a stated period of time or in larger quantities. Can be a cash, quantity, functional, or seasonal discounts.

Variable costs

Costs that vary directly with the level of production.

Market-skimming pricing (price skimming)

New product pricing strategy. Setting a high price for a new product to skim maximum revenues layer by layer from the segments willing to pay the high price; the company makes fewer but more profitable sales.

Market-penetration pricing

New product pricing stratgey. Setting a low price for a new product in order to attract a large number of buyers and a large market share.

Good-value pricing

Offering just the right combination of quality and good service at a fair price. Involves introducing less-expensive versions of established, brand name products. Involves redesigning existing brands to offer more quality for a given price or the same quality for less.

Reference prices

Prices that buyers carry in their minds and refer to when they look at a given product.

Psychological pricing

Pricing that considers the psychology of prices and not simply economies; the price is used to say something about the product.

Target costing

Pricing that starts with an ideal selling price, then targets costs (alligns costs to fit that price) that will ensure that the price is met.

Product bundle pricing

Product mix pricing strategy. Combining several products and offering the bundle at a reduced price.

By-product pricing

Product mix pricing strategy. Setting a price for by-products in order to make the main product's price more competitive. Pricing low-value by-products to get rid orf or make money on them.

Allowance

Promotional money paid by manufacturers to retailers in return for an agreement to feature the manufacturer's products in some way. Can be a trade-in or promotional allowances.

Break-even pricing (target return pricing)

Setting price to break even on the costs of making and marketing a product or setting price to make a target return. Uses a break-even chart showing the total cost and total revenue at volume levels. Fails to consider customer value and the relationship between price and demand.

Price

The amount of money charged for a product or service, or the sum of the values that customers exchange for the benefits of having or using the product or service.

Total costs

The sum of fixed and variable costs for any given level of production.

Dynamic pricing

Adjusting prices continually to meet the characteristics and needs of individual customers and situations.

Value-added pricing

Attaching value-added features and services to differentiate a company's offers and charging higher prices.

Fixed costs (overhead)

Costs that do not vary with production or sales level.

Cost-based pricing

Setting prices based on the costs of producing, distributing, and selling the product plus a fair rate of return for effort and risk. Costs are added and priced based on what will cover those costs plus a target profit. Starts with designing a product, then convincing buyers of product's value.

Promotional pricing

Temporarily pricing products below the list price, and sometimes even below cost, to increase excitement and urgency for short-run sales.

Cost-plus pricing (markup pricing)

Adding a standard markup to the cost of the product. Simpest pricing method. Ignores consumer demand and competitor prices. Popular because sellers are more certain about costs than demand and when all firms use this pricing method, prices tend to be similar and price competition is minimized.

Captive-product pricing

Product mix pricing strategy. Setting a price for products that must be used along with a main product, such as blades for a razor and games for video-game console. Also called two-part pricing; there is a fixed fee plus a variable usage rate.

Product line pricing

Product mix pricing strategy. Setting the price steps between various products in a product line based on cost differences between the products, customer evaluations of different features, and competitors' prices. Setting prices across an entire product line that look at cost differences between each product.

Optional-product pricing

Product mix pricing strategy. The pricing of optional or accessory products along with a main product. Must determine the base price and the the prices for the different added options.

Segmented pricing

Selling a product or service at two or more prices, where the differences in prices is not based on differences in costs.

Customer value-based pricing

Setting prices based on buyers' perception of value rather than on the seller's cost. Price is considered before the marketing program is set. Starts with assessing customer needs and value perceptions, then designing the product to deliver desired value at target price. However, value can be subjective so it is hard to determine.

Competition-based pricing

Setting prices based on competitors' strategies, prices, costs, and market offerings.

Pure competition

The market consists of many buyers and sellers trading in a uniform commodity. No single buyer or seller has much effect on the going market price. There is usually no marketing strategy.

Monopolistic competition

The market consists of many buyers and sellers trading over a range of prices rather than a single market price. Prices range due to sellers' ability to differentiate their offers to buyers. Each firm is less affected by competitors' pricing. Marketing strategies are utilized.

Oliopolistic competition

The market consists of only a few large sellers. Each seller is alert and responsive to competitors' pricing strategies and marketing moves.

Pure monolpoly

The market is dominated by one seller.

Everyday low pricing (EDLP)

Type of good-value pricing. Charging a constant, everyday low price with few or no temporary price discounts.