Which of the following refers to a pricing objective that maintains existing prices or meets the competitions prices quizlet?

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What is Price?

that which is given up in an exchange to acquire a good or service.

- Price means one thing to the consumer & another to the seller. to the consumer, the price is the cost of something; to the seller, price is the source of profits.

-Price is challenge for marketers.

What are 2 roles in the evaluation of product alternative?

As a measure of sacrifice & as an information cue.

-Sacrifice can be money to acquire the good or service, what is given up.
-Higher price can convey higher product quality & the prominence & status of the purchaser.

Opposing effects of price

-The sacrifice effect of price
-The information effect of price (Signaling effect)

How is value based?

Value is based upon perceived satisfaction.

-"Reasonable price" means "perceived reasonable value" at the time of the transaction.

Explain Profit

Profit=Rev-Exp
Rev= Price timeX Units

how does pricing objectives need to be?

-Specific
-Attainable
-Measurable

What are they 3 Categories of pricing objectives

1) Profit oriented
2) Sales oriented
3) Status quo

Explain the Profit-Oriented pricing objectives

-Profit maximization means setting prices so that total revenue is as possible relative to total cost.

-Satisfactory profits are profits that are satisfactory to the stockholders & management.

What is ROI ?

ROI= Net profits after taxes/ Total assets

-Generally, firms seek ROIs in the 10-30% (range).
-The manager must weigh the risk of a given strategy even if the return is the acceptable range.

Explain Sales-Oriented Pricing Objectives

Sales-oriented pricing objectives are based either on Market Share or Maximizing Sales.

-Companies with the objective of maximizing sales ignore profits, competition, & the marketing environment as long as sales are increasing.

*Maximization of cash should never be a long-run objective, because cash maximization may mean little or no profitability. Without profits, a company cannot survive.

Market Share

Is a company's product sales as a percentage of total sales for that industry. Many companies believe that maintaining or increasing market share is an indicator of the effectiveness of their marketing mix.

What are the 2 ways to measure market share?

by units & revenue

Explain the Status Quo pricing objectives.

Status Quo Pricing- a pricing objective that maintains existing prices or meets the competition's prices.

-This category requires little planning & is essentially a passive policy.
-Leads to sub-optimal pricing as it ignores customers' perceived value of the firm's goods or services & goods or services offered by the competitors
-Ignores demand & costs.

Pricing depends on what 2 things?

Pricing depends on the demand for a good or service & the cost to the seller for that good or service.

Demand

the quantity of a product that will be sold in the market at various prices for a specified period.

-The lower the price, the higher the demand for a product or service & vice versa.

Supply

Is the quantity of a product that will be offered to the market by a supplier at various prices for a specified period.

-At higher prices, supply increases as manufacturers earn more capital & vice versa.

Elasticity of demand

Consumers' responsiveness or sensitivity to changes in price.

Elastic demand

A situation in which consumer demand is sensitive to changes in price.

Inelastic demand

A situation in which an increase or a decrease in price will not significantly affect the demand for a product.

What are the factors that affect elasticity of demand? 4 things

1) Availability of Substitutes- When many substitutes are available, it is easy to switch products. This makes demand elastic.

2) Price relative to purchasing power- If a price is so low that it is an inconsequential part of an individual's budget, demand will be inelastic.

3) Product Durability- Repairing durable products rather than replacing them prolongs their useful life. Thus, people are sensitive to the price increases, & the demand is elastic.

4)Product's other uses- The greater the number of uses for a product, the more elastic demand tends to be. If a product has only one use, the quantity purchased probably will not vary as price varies.

What is Dynamic Pricing

The ability to change prices very quickly, often in real time.

*When competitive pressures are high, a company must know when it should raise or lower prices to maximize its revenues.
-e.g. Brick-and-mortar retailers to compete more efficiently with online alternatives.

What are cost determinant of price

-Sometimes the importance of demand is ignored when prices are decided largely or solely on the basis of costs.
-Prices set on the basis of cost may be too high for the target market, & if prices are set too low, the firm will earn a lower return than it should.

what are the 2 important aspects of price determination.

-Variable Cost: A cost that varies with changes in the level of output.

-Fixed cost: A cost that does not change as output is increased or decreased.

Markup pricing

The cost of buying the product form the producer, plus amounts for profit & for expenses not otherwise accounted for.

-To use markup based on cost or selling price effectively, the marketing manager must calculate an adequate gross margin.
Margin must provide adequate funds to cover selling expenses & profit.

Markup are often based on what?

Based on experience.
-Key-stoning: The practice of marking up prices by 100 %, or doubling the cost.

What are the other factors besides demand & costs that can influence price.

-Stages in the product life cycle: The demand for a product moves through its life cycle, which leads to price changes.
-Competition, price matching, & customer loyalty: Price matching may be used to courter the competitor's price. Competition varies during the product life cycle. Although a firm may not have competition at first, the high prices it charges may induce other firms to enter the market & sometimes competition can lead to price wars.
-Distribution strategy: An effective distribution network helps overcome minor flaws in the marketing mix.
-Impact of the Internet & extranets: (private electronic networks), & wireless issues allow sellers to collect detailed data about customers, which enables them to tailor products & prices.
-Promotion strategy: Used as a promotional tool to increase consumer interest.
-Demands of large customers: Specific pricing demands from large customers such as department stores may affect the profits of the manufacturers.
-Relationship of price to quality: Price promotions of higher-priced, higher quality brands & products such as perfumes & fine watches tend to attract more business.

Break-even Analysis

a method of determining what sales volume must be reached before total revenue equals total costs.

Provides a quick estimate of:
-How much the firm must sell to break even.
-How much profit can be earned if a higher sales volume is obtained.

Limitations
-Hard to determine if a cost is fixed or variable
-Ignores demand

Stages in Product Life Cycle

-Introductory stage
* Usually prices are high in hopes to recover development costs quickly.
* Demand originates in the core of the market & is relatively inelastic.
* If the target market is price sensitive, prices should be lower.

-Growth stage
*Prices begin to stabilize because: competitors have entered the market, increasing the supply; the product appeals to a broader market; economies of scale are lowering costs, and savings are passed on to the customer in the form of lower prices.

-Maturity stage
*•Further price decreases as competition increases and inefficient, high-cost firms are eliminated
•Distribution channels become a significant cost factor
•Price increases are cost initiated, not demand initiated.

-Decline stage
*•Further price decreases as few remaining competitors try to salvage the last vestiges of demand
•When only one firm is left in the market, prices stabilize
•Prices may eventually rise dramatically if the product survives and moves into the specialty goods category.

Explain distribution strategies.

Adequate distribution for a new product can be attained by :
-offering a larger-than-usual profit margin to distributors.

Giving distributors a large trade allowance to help:
-offset the costs of promotion
-stimulate demand at the retail level.

Explain how the promotion strategy is a tool for price

-increases consumer interest.
-Price promotion alone doesn't always create a low price image.
-The upscale ambiance, expensive specialty offerings, premier locations, a high level of service, & lack of price matching contribute to a high price image as well.

Price Transparency

The growth of the internet has resulted in an increase in price transparency.
-Allows consumers to compare prices in real time online.

Explain the Demands of large customers.

•Manufacturers find that their large customers such as department stores often make specific pricing demands that the suppliers must agree to
•Walmart is the largest retailer in the world and uses its size to encourage companies to meet its needs
-The company recently instituted a policy requiring suppliers to evaluate and disclose the full environmental costs of their products

Explain the relationship of price to quality.

•Consumers tend to rely on high price as a predictor of good quality when a purchase decision involves uncertainty
•Higher prices increase expectation and set a reference point against which people can evaluate their consumption experiences

What is the 4 step process in setting a price?

1. Establish pricing goals
2. Estimate demand, costs, & profits
3. Choose a price strategy to help determine a base price
4. Fine-tune the base price with pricing tactics.

4 step (overview) picture.

Explain fist step: Establish pricing goals

•A good understanding of the marketplace and of the consumer can sometimes tell a manager very quickly whether a goal is realistic
•Trade-offs for each pricing objective that managers must consider in light of the target customer, the environment, and the company's overall objectives
•A profit maximization objective may require a bigger initial investment than the firm can or wants to commit to
•Reaching the desired market share often means sacrificing short-term profit because without careful management, long-term profit goals may not be met
•Meeting the competition is the easiest pricing goal to implement, but requires that managers ignore demand and costs, the life cycle stage, and other considerations

Explain step 2: estimate demand, costs, & profits

•Elasticity is a function of the perceived value to the buyer relative to the price
•The types of questions managers consider when conducting marketing research on demand and elasticity are key
•After establishing pricing goals, managers should estimate total revenue at a variety of prices
•Next, they should determine corresponding costs for each price and then estimate how much profit and market share can be earned at each possible price

Explain step 3: choosing a price strategy

•Price strategy: a basic, long-term pricing framework that establishes the initial price for a product and the intended direction for price movements over the product life cycle
•The price strategy sets a competitive price in a specific market segment based on a well-defined positioning strategy.

Price skimming- A pricing policy whereby a firm charges a high introductory price, often coupled with heavy promotion.
-skimming is successful when :
*There is strong demand for a good or service.
*Product is legally well protected, represents a technological breakthrough, or has blocked the entry to competitors.

Penetration pricing- a pricing policy whereby a firm charges a relatively low price for a product when it is first rolled out as a way to reach the mass market.
* By charging a low price for a product, a larger share of the market is captured, resulting in lower production costs.
•This pricing strategy does tend to discourage competition and is effective in a price-sensitive market.
•The disadvantage of penetration pricing is that penetration means gearing up for mass production to sell a large volume at a low price.
•An advantage is that is typically discourages or blocks competition from entering a market.
-Requires a higher volume of sales to reach a breakeven point.
-Low prices can attract additional buyers to the market.
-Increased sales can justify production expansion or the adoption of new technologies.

Status quo- means charging a price identical to or very close to the competition's price.
-simplicity is an advantage
-strategy ignores demand or cost or both, which is a disadvantage.

Explain the forth fine-tuning the base price

Base price- the general price level at which the company expects to sell a good or service.
-Th general price level is correlated with the pricing policy.
-Fine tuning techniques include discounts, geographic pricing, & other pricing tactics.

Explain the 2 discount offered to customers.

1) Quantity discount- a price reduction offered to buyers buying in multiple units or above a specified dollar amount.

2 types of quantity discount:
-Cumulative quantity discount: a deduction from list price that applies to the buyer's total purchases made during a specific period.
-Noncumulative quantity discount: a deduction from list price that applies to the buyer's total purchases made during a specific period.

Cash discount- a price reduction offered to a consumer, an industrial user, or a marketing intermediary in return for prompt payment of a bill.

Explain the 5 different discounts, allowances, and other offered to producers as pricing tactics

-Functional discount (trade discount): A discount to wholesales & retailers for performing channel functions.

-Seasonal discount: a price reduction for buying merchandise out of season.

-Promotional allowance (trade allowance): a payment to a dealer for promoting the manufacturer's products.

-Rebate: a cash refund given for the purchase of a product during a specific period.

Coupons- are discounts offered via paper, a printable web-page, or an electronic code.

What are some other pricing tactics used ?

-Zero percent financing offers no interest charge in order to increase sales.
-Free shipping helps to lower the price for the consumer.
-Shipping through Amazon can provide shipping discounts for merchants.

-Value based pricing: Setting the price at a level that seems to the customer to be a good price compared to the prices of other options.
Assumption is this is customer driven.

Explain Geographic Pricing

Sellers may use geographic pricing tactics to moderate the impact of freight costs on distant customers.

-FOB origin pricing: a price tactic that requires the buyer to absorb the freight costs from the shipping point "free onboard". used when shipping costs are high.

-Uniform delivered pricing: the seller pays the actual freight charges & bills every purchase an identical, flat freight charge. Makes total costs, including freight, equal for all purchasers of identical products. Sometimes called postage stamp pricing.

-Zone pricing: is a modification of uniform delivered pricing. It divides the United States into segments or zones & charges a flat freight rate to all customers in a given zone.
*used to equalize the total costs among buyers withing large geographic areas but not necessarily all o the seller's market area.

-Freight absorption pricing: a price tactic in which the seller pays all or part of the actual freight charges and does not pass them on to the buyer
-Basing-point pricing: a price tactic that charges freight from a given (basing) point, regardless of the city from which the goods are shipped

what are the other pricing tactics that defy neat categorization?

-Single-price tactic: a price tactic that offers all goods and services at the same price (or perhaps two or three prices).
e.g- Dollar tree/general

-Flexible pricing (variable pricing): a price tactic in which different customers pay different prices for essentially the same merchandise bought in equal quantities.
* found in the sale of shopping goods, specialty merchandise, & most industrial good except supply items.
* car dealers & appliance retailers use this tactic.
* Lack of consistent profit margins, the potential ill will of high-paying purchasers, the tendency for salespeople to automatically lower the price to make a sale, & the possibility of a price war among sellers are all disadvantages of this tactic.

-Professional services pricing: used by people with lengthy experience, training, & often certification by a licensing board. lawyers, physicians, family counselors.
-Price lining: the practice of offering a product line with several items at specific price points.
•Wireless providers use price lining for cell phones that are purchased with a two-year contract
•Reduces confusion for both salesperson and consumer
•Enable a seller to reach several market segments

more pricing tactics

-Leader pricing (loss-leader pricing): a price tactic in which a product is sold near or even below cost in the hope that shoppers will buy other items once they are in the store.
*Appears weekly in the newspaper advertising of supermarkets.
-Bait pricing: a price tactic that tries to get consumers into a store though false or misleading price advertising and then uses high-pressure selling to persuade consumers to buy more expensive merchandise.
*The FTC considers bait pricing a deceptive act & has banned its use in interstate commerce.
-Off-even pricing (psychological pricing): a price tactic that uses odd-numbered prices to connote bargains and even-numbered prices to imply quality.

Price bundling & 2-part pricing

-Price bundling: marketing two or more products in a single package for a special price.
-Two-part pricing: a price tactic that charges two separate amounts to consume a single good or service.
*may attract consumers who would not pay a high fee for unlimited use.
-Pay what you want: Risky tactic that people use to pay for something that they think it is worth.
*Social pressures can come into play because people do not want to appear poor or cheap.
-Package content reduction: Manufacturers keep the price & package size the same while reducing the amount of content.

What is revenue?

Price time units

Costs that vary in proportion to changes in the level of activity are:
Costs that vary in proportion to changes in the level of activity are:

Variable

Costs that remain the same in total dollar amount as the activity base changes are:

Fixed

Overview of the 4 pricing objectives

In what type of pricing are prices set with an exclusive eye on profits?

profit maximization.

How does one calculate the return on investment?

Net profits after taxes divided/ by the total investment.

What is the benefit of sales-oriented pricing?

Companies with the highest sales can claim leadership status in the marketplace.

Why is the supply curve upward sloping curve?

Higher prices induce the sellers to create additional supply.

Where the supply curve and the demand curve meet, is called:

Equilibrium

What goods may have higher demand if they have a higher price?

Luxury goods

In which market structure with very few sellers, the sellers have to price their product at a going rate?

Oligopoly

Products such as home goods, clothing, furniture are usually sell in a(n) ___________ market structure.

Monopolistic competition

Which of the following is false about monopoly?

The sellers watch their competitors very closely.

Which of the following is not a benefit of selling the product at a lower price?

Create a shortage in the market

Which of the following is true about price skimming strategy?

It starts with a high price.

A company is using ___________ when charging a high price when introducing the product, and then lowering the price after some time.

Price skimming

If a retailer does not want to carry its leftover inventory to the next year, which discount method should be used?

seasonal discount

Which of the following discount method is typically used for business customers?

Cash discount

If customers buy two packs of coke cans, they will get 20% off. Which promotion method is being used?

Quantity discount

When the freight cost component is high, the seller may want to use ________.

FOB pricing

In ______________, retailers sell a product at a low price, with the hopes of making up the profit from the sales of other products.

Loss Leader Pricing

A travel company sometimes may sell not only airline tickets, but also provide car rental and hotels booking services. This is an example of:

bundling

Why is price fixing illegal?

Because the companies can collaborate & create a form of monopoly.

Which of the following is illegal price discrimination?

The "I love NY" products costs more for a foreigner compared to locals.

When the companies get together to set a higher price, it is called ___________________.

Price fixing

Which of the following refers to a pricing objective that maintains existing prices or meets the competition's prices quizlet?

Which term refers to a pricing objective that maintains existing prices or meets the competition's prices?

What are pricing objectives quizlet?

Which of the following is an example of a pricing objective?