Chapter 13: Setting the Right Price Flashcards Preview

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Flashcards in Chapter 13: Setting the Right Price Deck (43)
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That which is given up in an exchange to acquire a good or service.



The price per unit charged to customers multiplied by the number of units sold. Price x quantity.



The combined financial value of all inputs that go into the production of a company's products, both directly and indirectly.



Revenues minus expenses.


Return on investment (ROI)

Net profits divided by the investment.


Market share

A company's product sales as a percentage of total sales for that industry.


Status quo pricing

A pricing objective that maintains existing prices or meets the competition's prices.


Four steps in setting the right price on a product

1) Establish pricing objectives 2) estimate demand, costs, and profits 3) choose a price strategy to help determine a base price 4) fine-tune the base price with pricing tactics.


Different Pricing Objectives

Profit-oriented pricing objectives (pursuing profit maximization or satisfactory profits or target ROI); sales-oriented pricing objectives (pursuing market share or sales maximization); status quo pricing (pursuing the status quo price).


Price sensitivity

Consumer's varying levels of desire to buy a given product at different price levels.


Price elasticity of demand

A measurement of change in consumer demand for a product relative to the changes in its price.


Break-even analysis

The calculation of number of units sold, or total revenue required, a firm must meet to cover its costs, beyond which profit will occur. Formula: Fixed costs / (Variable price per unit / Variable cost per unit)


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. Price strategies are price skimming, penetration pricing, or status quo pricing.


Price skimming

A high introductory price, often coupled with heavy promotion to skim the cream off the top and people are willing to pay more for a perceived above-average product.


Penetration pricing

A relatively low price for a product initially as a way to reach the mass market.


Experience curves

Curves that show costs declining at a predictable rate s experience with a product increases.


Base price

The general price level at which the company expects to sell the good or service.


Quantity discount

A unit price reduction offered to buyers buying either in multiple units or at more than a specified dollar amount.


Cumulative quantity discount

A deduction from list price that applies to the buyer's total purchases made during a specific period. (Spend more than $600 in this time period and get a discount).


Noncumulative quantity discount

A deduction from list price that applies to a single order rather than to the total volume of orders placed during a certain period. (Buy three or more of a product for a discount).


Cash discount

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


Functional discount (trade discount)

A discount to wholesalers and retailers for performing channel functions.


Seasonal discounts

A price reduction for buying merchandise out of season.


Value-based pricing

Setting the price at a level that seems to the customer to be a good price compared with the prices of other options.


FOB (free on board) origin pricing

The buyer absorbs the freight costs from the shipping point ("free on board").


Uniform delivered pricing

The seller pays the actual freight charges and bills every purchaser an identical, flat freight charge.


Zone pricing

A modification of uniform delivered pricing that divides the total market into segments or zones and charges a flat freight rate to all customers in a given zone.


Freight absorption pricing

The seller pays all or part of the actual freight charges and does not pass them on to the buyer.


Basing-point pricing

Charging freight from a given (basing) point, regardless of the city from which the goods are shipped. Mostly illegal now.


Single-price tactic

Offering all goods and services at the same price (or perhaps two or three prices).