Term
|
Definition
- price is he value consumers give up (exchange) to obtain desired product.
- Payment may be in for of:
money, service, favors, votes
- ANYTHING with value to the customer |
|
|
Term
Decisions of price?
- source for?
- lower price if not selling a new product? |
|
Definition
- only source of profit for most organizations is price charged for products
- critical to firms success
- DO NOT LOWER PRICE as a first decision if your new product is not selling (sell or communicate value of product with your price) |
|
|
Term
| Determinants of Price: (3) |
|
Definition
1. demand, or what consumers are willing to pay
2. Value pricing (show value of product through its price)
3. Look at costs of manufacturing |
|
|
Term
| How to calculate elasticity of demand |
|
Definition
| % change in quanity demanded/ % change in price |
|
|
Term
Elasticity of Demand:
-DEFN
E>1= ???
E<1= ???
E=1= ??? |
|
Definition
DEFN: market reaction to price change
E>1= elastic, Demand changes with price
E<1= inelastic, Demand does not change much with price
E=1: Unitary Elastic |
|
|
Term
Elasticity and Revenue
-elastic
-inelastic
Who cares? |
|
Definition
Elastic: inverse relationship
- lower price, increase revenue
Inelastic: lower price, revenue decreases
Why who cares?
- deals with price changes
- elasticity differs in different market segments
- understand your market segment in order to set price |
|
|
Term
| Shift in Demand Curves (4) non- pricing |
|
Definition
1. advertising/promotions
2. weather/ seasonal factors
3. development of new products
4. economic conditions |
|
|
Term
Target costing (demand backward pricing)
(3 things) |
|
Definition
1. price is first determined on what customers are willing to pay
2. or what competitors are charging
3. then whether you can make a profit or not at that price |
|
|
Term
|
Definition
- What do the customers perceive the value for your product to be?
EX. high price adds value |
|
|
Term
Cost-Based Strategy
ADV VS DISADV |
|
Definition
ADV: simple, relatively risk free
DISADV: misses many factors, (competition, demand) so its difficult to estimate costs |
|
|
Term
| Cost Plus Pricing(most common approach) |
|
Definition
- Marketer figures all costs for product then adds desired profit per unit
- straight markup pricing is the most frequent
** markup costs with a predetermined rate |
|
|
Term
Cost-Based Pricing
(break even pricing) |
|
Definition
| - how many units at this price do I need to sell to break even (costs are covered, not a penny over) |
|
|
Term
| How to calculate break even point |
|
Definition
| BE= total fixed costs(unit selling-variable costs) |
|
|
Term
| What are fixed and variable costs |
|
Definition
Fixed costs: does not change regardless of units produced
Variable costs: fluctuates with the number of units produced |
|
|
Term
|
Definition
-ODD.EVEN APPROACH
($4.99, 19,999) instead of ($5.00, 20,000)
- "appears" to be cheaper |
|
|
Term
|
Definition
- groups of product prices within your products to lessen consumer choices
- consumers usually pick middle price
EX:
($25, $50, $75)
consumers can pick from these choices |
|
|
Term
What if we want people to pay the high price? (price lining)
- Latitudes |
|
Definition
- Latitudes can be moved from rejection to acceptance!
Latitude of rejection: at low and high price
Latitude of acceptance: middle price
- when salespeople show a product they usually show their expensive product first to give the customer a reference point (idea) on how much it will cost |
|
|
Term
|
Definition
| price in consumer mind on how much a particular good should cost |
|
|
Term
Firms may price product at:
(3) |
|
Definition
1. same level as competition
2. lower than competition
3. higher than competition |
|
|
Term
| Price Leadership strategy |
|
Definition
| follow industry leader, set same or similar price |
|
|
Term
What is cost ownership?
-calculate |
|
Definition
Price consumers pay for product
+ cost of maintaining/using product
- resale or salvage value
= cost of ownership |
|
|
Term
|
Definition
- price a product low for limited period of time in order to lower the risk for the consumer
- Win customer acceptance with low price then raise price/ make profits later |
|
|
Term
Pricing for individual products
- two part pricing
- payment pricing |
|
Definition
Two part pricing: two seperate types of payments required to purchase product
Payment Pricing: seeks to make customer pricing doable |
|
|
Term
Pricing for multiple products
- price bundling
- captive pricing |
|
Definition
Price Bundling: selling two or more goods as a single package for one price
Captive pricing: Price tactic firm uses when it has 2 products that only work when used together
- sells one "main" for low price and makes its profit in second "high margin" item
EX:
razors (low price) and razor blades (high price/profit margin) |
|
|
Term
Price Skimming
vs
Price Penetration |
|
Definition
Price skimming:
- Set high price intially
- no competition
- effective when demand is inelastic
- lowering price doesnt help
Price Penetration:
- set LOW price initially
- competition in market
- effective when demand is elastic
- consumers are price sensitive
( setting a low price can discourage customers because it shows less value) |
|
|
Term
Legal and Ethical issues (6)
brief defn
- bait and switch
- unitary sales act
- price fixing
- predatory pricing
- price discrimination
- loss leader pricing |
|
Definition
Bait and Switch:
-bait customers with an exclusive item
-item is not actually available, but tries to sell a different/similar item at a higher price
- legal if says "while supplies last"
Unitary Sale Act: (LOSS LEADERSHIP)
- set a product at a low price knowing they will buy complimentary products
(sell hot dogs at profit loss, knowing they will buy mustard, ketchup, buns, etc)
Price fixing:
Horizontal- firms get together and formally set a high price
vertical- manufacturer tell retailers what to sell their product for
Predatory pricing: setting low price intentionally to drive competition out of business
Price discrimination- Robinson-Patman act
-everyone gets same price
Loss Leader Pricing: the law sets a certain price for the good and how long you can sell it for at that price |
|
|
Term
Promotional Pricing
DEFN
- bad to have too many promos? |
|
Definition
offer sale or discount to lower price
-too many promotions, people will wait until promotions to buy the good if you have too many too often.
- it can hurt the brand |
|
|
Term
| why is it important to be consistent with promotion and marketing? |
|
Definition
IT BUILDS BRAND RECOGNITION
(part of promotional goals) |
|
|
Term
Integrative Marketing Coordination (IMC)
(part of promotional goals) |
|
Definition
| coordination of marketing communication efforts to influence attitudes or behaviors |
|
|
Term
| Basic Promotional goals (4) |
|
Definition
Inform,
remind,
persuade,
and build relationships |
|
|
Term
| Shifts in Pricing: Quantity Discounts (3 types) brief defn |
|
Definition
Seasonal: inconsistent demand, buy out of season
Cash Discounts: 2/10n30= 2% cash discount if paid within 10days otherwise due in 30days
Functional Discounts: A discount offered to a middleman for performing a channel funciton |
|
|
Term
|
Definition
-The more people you get to participate in a market, the more profitable it is.
EX.
the more people google get to use gmail, the more eyes it attracts
- boosts rates for advertisers that are willing to pay to talk to these people |
|
|
Term
|
Definition
| is the practice of modifying a basic list price based on the geographical location of the buyer. It is intended to reflect the costs of shipping to different locations. |
|
|
Term
|
Definition
("EDLP") is a pricing strategy promising consumers a low price without the need to wait for sale price events or comparison shop. EDLP saves retail stores the effort and expense needed to mark down prices in the store during sale events, and to market these events; and is believed to generate shopper loyalty
EXAMPLE:
Nordstrom Rack |
|
|
