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Market Strategy

Chapter 8: Final Exam Review

QuestionAnswer
Price The amount of money charged for a product or service, or the sum of values that consumers exchange for the benefits of having or using the product or service.
Demand-Based Pricing
Value-Based Pricing
Cost-Based Pricing
Competition-Based Pricing
Market-Based Pricing
Profit Equation Equal to total revenue minus total costs (Fixed and variable costs) *Price affects the quantity sold and hence profit, because it directly affects both revenues and costs.
Pricing Objectives Enhancing brand image, providing customer value, obtaining an adequate ROI or cash flow, and increasing market share.
Factors that Affect Pricing Decisions Demand for a product and consumers' value perception, costs (particularly variable costs), price must cover at least variable costs, competitors prices, and government regulations.
Price as an Indicator of Value Consumers pair price with perceived benefits derived from a product to determine value. Value can be defined as the ratio of perceived benefits to price. Value = Perceived Benefits/Price
Price Elasticity of Demand (E) Measures how responsive consumer demand is to changes in an offering's price. Is the percentage change in quantity demanded relative to a percentage change in price. = Percentage Change in Quantity Demanded/Percentage Change in Price
Elastic Demand The percentage change in quantity demanded is greater than the percentage change in price (E>1). A change in Price will result in a large decrease in the quantity purchased.
Inelastic Demand The percentage change in quantity demanded is less than the percentage change in price (E<1). A change in price will result in a small or no decrease in the quantity purchased.
Cross-elasticity of Demand Relates the price elasticity simultaneously to more than one product. Measures responsiveness of the quantity demanded of product A to a price change in product B.
Unit Contribution Formula =Unit Selling Price - Unit Variable Costs
Estimating the Profit Impact from Price Changes Break-even analysis principles can be used to assess the effect of price changes on volume and profitability.
Break-even Formula =Total Fixed Costs/(Unit Selling Price - Unit Variable Costs)
Determining the Unit Volume Necessary to Break Even on a Price Change Percentage Change in Unit Volume to BE on a Price Change = -(Percentage Price Change)/(Original Contribution Margin + Percentage Price Change)
Full-Cost Price Strategies Those that consider both variable and fixed costs (also called direct and indirect).
Variable-Cost Price Strategies Those that take into account only the direct variable costs associated with an offering.
Mark-up Pricing Full-Cost pricing strategy that is determine simply by adding a fixed amount to the cost of the product.
Break-Even Pricing A full-cost pricing strategy that equals per-unit fixed costs plus the per unit variable costs of an offering.
Rate-of-Return Pricing A full-cost pricing strategy that obtains a pre-specified rate of return on investment (ROI) for an organization.
Purpose of Variable-Cost Price Strategies Also known as contribution pricing, used when a firm operates under capacity and fixed costs are a great proportion of total costs. Used to stimulate demand and shift demand if needed.
Product-Line Pricing Involves determining lowest-priced product price as the traffic builder designed to capture attention, highest-price product price, typically positioned as the premium item in quality, and price differentials for products in the line.
Captive -Product Pricing Pricing the basic product low, but related items at a higher price.
Bait Pricing Attract customers to store with a lower priced item so that buy higher priced ones.
Skimming Pricing Strategy The price for a new product is set very high initially and is typically reduced over time.
Penetration Pricing Strategy An offering is introduced at a low price.
Intermediate Pricing Strategy The price is set between the two extremes and is used in the vast majority of intitial pricing decisions.
Created by: KAzetapi
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