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Marketing
Chapter 14
| Question | Answer |
|---|---|
| Four approaches to finding aprrox price level | 1) Demand-oriented 2) Cost-oriented 3) Profit-oriented 4) Competition-oriented |
| Skimming Pricing | Setting the highest initial price that customers really desiring the product are willing to pay |
| Skimming prices effective when | 1) Enough customers willing to buy immediately 2) high initial price won't attract competitors 3) Lowering price has minor effect on increasing sales volume and reducing unit costs 4) customers interpret the high price as signifying high quality |
| Penetration pricing | Setting a low initial price on new product to immediately appeal to mass market |
| Prestige pricing | Setting a high price so that quality-or status-conscious consumers will be attracted to the product and buy it |
| Price lining | Selling a line of products that may be priced at different specific price points |
| Odd-even pricing | Setting prices a few dollars or cents under an even number |
| Target pricing | Manufacturers will sometimes estimate the price that the ultimate consumer would be willing to pay for a product. They then work backward through markups take by retailers and wholesalers to determine that price they can charge wholesalers for product |
| Bundle pricing | Marketing of two or more products in a single package price |
| Yield Management pricing | charging of different prices to maximize revenue for a set amount of capacity at any given time; continually matches demand and supply to customize price for service |
| Demand-oriented (8) | 1) Skimming 2) Penetration 3) Prestige 4) Price lining 5) Odd-even 6) Target 7) Bundle 8) Yield management |
| Standard Markup pricing | Adding a fixed percentage to the cost of all item in a specific product classs |
| _____-volume products usually have smaller markups than _____-volume products | High; low |
| Cost-plus pricing | summing the total unit cost of providing a product or service and adding a specific amount to the cost to arrive at a price |
| Cost-plus percentage-of-cost pricing | Fixed percentage is added tot he total unit cost (one- or few-of-a-kind items; construction) |
| Cost-plus fixed-fee pricing | A supplier is reimbursed for all costs, regardless of what they turn out to be, but is allowed only a fixed fee as profit that is independent of the final cost of project |
| ________ pricing is the most commonly used method to set prices for business products | Cost-plus |
| Experience curve pricing | based on the learning effect; the unit cost of many products and services declines by 10% to 30% each time a firm's experience at producing and selling them doubles |
| Cost-oriented approaches | 1) Standard markup 2) Cost-plus 3) Experience curve |
| Target Profit pricing | A firm sets an annual target of a specific dollar volume of profit |
| Target Return-on-sales pricing | Set typical prices that will give them a profit that is a specified percentage of the sales volume (supermarkets) |
| Target Return-on-sales = | (Target profit)/(total revenue) |
| Target Return-on-investment pricing | Method of setting prices for large, publicly owned corporations and many public utilities to achieve annual ROI targets |
| Profit-oriented approaches | 1) Target profit 2) Target return-on-sales 3) Target return-on-investment |
| Customary pricing | Used for some products where tradition, a standardized channel of distribution, or other competitive factors dictate the price |
| Above-, At-, or Below-Market Pricing | Marketing managers choose b/c it is hard to id a specific market price for product/class. have subjective feel for competitor's price or market price |
| Companies use a "_____ _________" to assess whether their products and brands are above, at, or below the market | Price premium |
| Loss-leader pricing | Not to increase sales but to attract customers in hopes that they will buy other products as well |
| Competition-oriented approaches | 1) Customary pricing 2) Above-, at-, or below-market pricing 3) Loss leader pricing |
| One-price policy | "fixed pricing"; setting one price for all buyers of a product or service |
| Flexible-price policy | "dynamic pricing"; setting different prices for products and services depending on individual buyers and purchase situations. Gives seller discretion in setting final price in light of demand, cost, and competitive factors |
| Most companies use a _______-______ policy | one-price |
| Product-line pricing | setting of prices for all items in a product line. When setting prices, the manager seeks to cover the total cost and produce a profit for the complete line |
| Product-line pricing involves determining | 1) Lowest-priced product and price 2) Highest-priced product and price 3) Price differentials for all other products in the line |
| Price War | Successive price cutting by competitors to increase or maintain their unit sales or market share |
| Marketers are advised to consider price cutting only when 1 or more conditions exists: | 1) has cost/technological advantage over competition 2) Primary demand for a product class will grow if prices are lowered 3) The price cut is confined to specific products or customers and not across the board |
| Discounts | reductions from the list price that a seller gives a buyer as a reward for some activity of the buyer that is favorable to the seller |
| Four Discounts= | 1) Quantity 2) Seasonal 3) Trade (Fucntional) 4) Cash |
| Quantity discounts | encourage customers to buy larger quantities of a product |
| Noncumulative quantity discounts | based on the size of an individual purchase order |
| Cumulative quantity discounts | apply to the accumulation of purchases of a product over a given time period (one year) |
| Trade (functional) discounts | Reductions off the list or base price are offered to resellers in the marketing channel on the basis of (1) where they are in the channel (2) marketing activities they are expected to perform in the future |
| Cash discounts | to encourage retailers to pay their bills quickly |
| Allowances | reductions from list or quoted prices to buyers for performing some activity |
| Trade-in allowance | price reduction given when a used product is part of the payment on a new product |
| Promotional allowances | allowance for undertaking certain advertising or selling activities to promote a product |
| Everyday low prices | practice of replacing promotional allowances with lower manufacturer list prices. Promises to reduce the average price to consumers while minimizing promotional allowances that cost manufacturers billion every year |
| FOB Origin Pricing | "free on board"; involves the seller's naming the location of this loading as the seller's factory or warehouse |
| Uniform delivered prcing | The price the seller quotes includes all the transportation costs. It's quoted in a contract as "FOB buyer's location" and the seller selects the mode of transportation, pays freight charge and responsible for any damages |
| Single-zone pricing | all buyers pay the same delivered price for the products, regardless of their distance from the seller |
| Multiple-zone pricing | A firm divides its selling territory into geographic areas or zones. The delivered price to all buyers within any zone is the same, but prices across zones vary |
| FOB with freight-allowed pricing | "freight absorption pricing"; the price is quoted by the seller as "FOB plant-freight allowed". The buyer is allowed to deduct freight expenses from list price so seller "absorbs" cost |
| Basing point pricing | selecting one or more geographical locations (basing point) from which the list price for products plus freight expenses are charged to the buyer |
| Price fixing | Illegal per se under Sherman Act; A conspiracy among firms to set prices for a product |
| Horizontal price fixing | when two or more competitors explicitly or implicitly set prices |
| Vertical price fixing | involves controlling agreements between independent buyers and sellers whereby sellers are required to not sell products below a minimum retail price |
| "Rule of Reason" | Circumstances surrounding a practice must be considered before making a judgement about its legality. Direct opposite of the per se rule |
| Price discrimination | the practice of charging different prices to different buyers for goods of like grade and quality; outlawed by Clayton Act |
| Deceptive pricing | Price deals that mislead consumers; outlawed by FTC |
| Predatory pricing | charging a very low price for a product with the intent of driving competitors out of business |
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