MKTG 321 Chapter 20
Price Conscious
Individuals strive to pay low prices. Want lowest prices, even if products are not of the highest quality Example: Amazon, Wal-Mart
Cash
To reduce expenses associated with accounts receivable and collection by encouraging prompt payment of accounts Price reduction, is given to a buyer for prompt payment or cash payment. Accounts receivable are an expense and a collection problem for many organizations. A policy to encourage prompt payment is a popular practice and sometimes a major concern in setting prices.
Cumulative Discounts NonCumulative Discounts
What are 2 types of quantity discounts?
Value-Conscious Price Conscious Prestige Sensitive
What are 3 characteristics that marketers are able to set pricing objectives and policies based on the buyer.
Freight Absorption Pricing
When the seller absorbs all or part of the actual freight costs. The seller might choose this method because it wishes to do business with a particular customer or to get more business; more business will cause the average cost to fall and counterbalance the extra freight cost. This strategy is used to improve market penetration and retain a hold in an increasingly competitive market.
elastic
a change in price causes an opposite change in total revenue: an increase in price will decrease total revenue, and a decrease in price will increase total revenue
Cumulative Discounts
are quantity discounts aggregated over a stated time period. Such discounts are intended to reflect economies in selling and encourage the buyer to purchase from one seller.
Marginal Analysis
examines what happens to a firm's costs and revenues when production (or sales volume) changes by one unit. Both production costs and revenues must be evaluated.
Zone Pricing
sets uniform prices for each of several major geographic zones; as the transportation costs across zones increase, so do the prices.
trade (functional) discount.
A reduction off the list price given by a producer to an intermediary for performing certain functions. Usually stated in terms of a percentage or series of percentages off the list price. Intermediaries are given this as compensation for performing various functions, such as selling, transporting, storing, final processing, and perhaps providing credit services. To attract and keep effective resellers by compensating them for performing certain functions, such as transportation, warehousing, selling, and providing credit
Seasonal
Allow a marketer to use resources more efficiently by stimulating sales during off-peak periods. A price reduction to buyers that purchase goods or services out of season. These discounts let the seller maintain steadier production during the year.
NonCumulative Discounts
Are one-time reductions in prices based on the number of units purchased, the dollar value of the order, or the product mix purchased. should reflect some economies in selling or trade functions.
Prestige Sensitive
Buyers focus on purchasing products that signify prominence and status. Ex: Tiffany and Co Some customers "trade up" to higher status products in categories like automobile, home appliance and restaurants.
Value Conscious
Consumers are concerned about both price and quality of a product. Recession: Value and price conscious and limit discretionary spending. Economic savings and additional gains
Price Competition
Emphasizing prices as an issuer and matching or beating competitors price
Allowance
In the case of a trade-in allowance, to assist the buyer in making the purchase and potentially earning a profit on the resale of used equipment; in the case of a promotional allowance, to ensure that dealers participate in advertising and sales support programs. a concession in price to achieve a desired goal. help make the buyer better able to make the new purchase.
Geographic Pricing
Involves reductions for transportation costs or other costs associated with the physical distance between buyer and seller. Prices may be quoted as F.O.B. (free-onboard) factory or destination.
Transfer Pricing
Occurs when one unit in an organization sells a product to another unit. Depends on the company's management strategy and the nature of the units' interaction. Fair to all units involved in the transactions.
Internal Reference Price
Price Developed in the buyers mind through experience with the product. Reflects a belief that a product should cost approx. a certain amount. What they think the product "ought to cost" Include less confident customers with higher price
FOB destination
Price means the producer absorbs the costs of shipping the merchandise to the customer. This policy may be used to attract distant customers.
External Reference Price
Product categories with which we have less experience, we rely more on this. A comparison price provided by others, such as retailers or manufactures.
Marginal Revenue
The change in totally revenue that occurs when a firm sells an additional unit of a product
Break-Even Point
The point at which the costs of producing a product equal the revenue made from selling the product. Knowing the number of units necessary to break even is important in setting the price. Marketer should determine for each several alternative prices. Will identity highly undesirable price alternatives that should definitely be avoided. Simple and strait forward Does assume that the quantity demanded is basically fixed (inelastic) and that the major task in setting prices is to recover costs. Determines whether a product will achieve at least break-even volume.
Price
The value paid for product in a marketing exchange. key element in the marketing mix, because it relates directly to generation of total revenue. Only variable in the marketing mix that can be adjusted quickly and easily to respond to changes in the external environment.
uniform geographic pricing "postage-stamp pricing"
To avoid the problems involved in charging different prices to each customer. The same price is charged to all customers regardless of geographic location, and the price is based on average shipping costs for all customers. Paper products and office equipment
Quantity
To encourage customers to buy large quantities when making purchases and, in the case of cumulative discounts, to encourage customer loyalty. Deductions from list price that reflect the economies of purchasing in large quantities Used in many industries and pass on to the buyer cost savings gained through economies of scale.
Inelastic
demand results in a change in the same direction as total revenue: an increase in price will increase total revenue, and a decrease in price will decrease total revenue.
Fixed Costs
do not vary with changes in the number of units produced or sold
Base-Point Pricing
is a geographic pricing policy that includes the price at the factory, plus freight charges from the base point nearest the buyer. This approach to pricing has virtually been abandoned because of its questionable legal status.
Demand Curve
is a graph of the quantity of products expected to be sold at various prices if other factors remain constant.
Marginal Costs
is the extra cost a firm incurs when it produces one more unit of a product.
Average fixed cost
is the fixed cost per unit produced and is calculated by dividing fixed costs by the number of units produced.
Total cost
is the sum of average fixed costs and average variable costs times the quantity produced
Average Total Costs
is the sum of the average fixed cost and the average variable cost
Nonprice competition
occurs when a seller decides not to focus on price and instead emphasizes distinctive product features, service, product quality, promotion, packaging, or other factors to distinguish its product from competing brands. increase its brand's unit sales through means other than changing the brand's price. Establishing brand loyalty by using nonprice competition works best when the product can be physically differentiated and the customer can recognize these differences.
F.O.B. (free-onboard) factory
price indicates the price of the merchandise at the factory, before it is loaded onto the carrier, and thus excludes transportation costs. The buyer must pay for shipping.
Price elasticity of demand
provides a measure of the sensitivity of demand to changes in price. It is formally defined as the percentage change in quantity demanded relative to a given percentage change in price
Barter
the trading of products is the older form of exchange
Average variable cost
the variable cost per unit produced, is calculated by dividing the variable costs by the number of units produced.
Variable Costs
vary directly with changes in the number of units produced or sold. usually constant per unit; that is, twice as many workers and twice as much material produce twice as many cans of paint