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11/24/2015

PricingConceptsandSettingtheRightPriceflashcards|Quizlet

Pricing Concepts and Setting the Right


Price

41 terms by abfoley24

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Price

Price is that which is given up in an


exchange to acquire a good or service
price allocates resources in a freemarket economy

the importance of price to the seller

price is revenue

the importance of price to the


consumer

price is the cost of something

Revenue

the price charged to customers


multiplied by the number of units sold

Profit

revenue minus expenses

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11/24/2015

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5 Trends influencing Price

flood of new products


increased availability of bargain-priced
private and generic brands
price cutting as a strategy to maintain
or regain market share
internet used for comparison shopping
US recession from late 2007 to 2009
and beyond

3 Pricing Objectives

Profit oriented
Sales oriented
Status quo

3 Profit-oriented Pricing Objectives

Profit maximization
Satisfactory Profits
Target ROI

2 Sales-Oriented Pricing Objectives

Market share
Sales Maximization

2 Status Quo Pricing Objectives

Maintain existing prices


Meet competition's prices

Demand

the quantity of a product that will be


sold in the market at various prices for
a specified period

Supply

the quantity of a product that will be


offered to the market by a supplier at
various prices for a specified period

Elastic demand

consumers buy more or less of a


product when the price changes

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Inelastic demand

an increase or a decrease in price will


not significantly affect demand

Unitary elasticity

an increase in sales exactly offsets a


decrease in prices, so total revenue
remains the same

5 factors that affect elasticity of


demand

availability of substitutes
price relative to purchasing power
product durability
a product's other uses
rate of inflation

Variable cost

varies with changes in level of output

Fixed cost

does not change as level of output


changes

Markup pricing

the cost of buying the product from the


producer plus amounts for profit and
for expenses not otherwise accounted
for

Keystoning

the practice of marking up prices by


100 percent, or doubling the costs

Profit maximization

a method of setting prices that occurs


when marginal revenue equals
marginal cost

Marginal Revenue

the extra revenue associated with


selling an extra unit of output, or the
change in total revenue with a one-unit
change in output

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11/24/2015

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5 other determinants of Price

Stages of the PLC


Competition
Distribution strategy
Promotion strategy
Perceived quality

Stages in PLC and relative price status

Intro Stage- prices high


Growth Stage- prices stabilize
Maturity Stage- price decreases
Decline Stage- price decreases

Competition

high prices may induce firms to enter


the market
can lead to price wars

Manufacturers Distribution Strategy

offer a larger profit margin or trade


allowance
use exclusive distribution
franchising
avoid business with price-cutting
discounters
develop brand loyalty

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6 dimensions of quality

ease of use
versatility
durability
serviceability
performance
prestige

5 steps in new-product development


process

establish pricing goals


estimate demand, costs, and profits
choose a price strategy
fine-tune with pricing tactics
results lead to the right price

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 PLC

Price skimming

a firm charges a high introductory


price, often coupled with heavy
promotion

Penetration pricing

a firm charges a relatively low price for


a product initially as a way to reach the
mass market

Status Quo pricing

charging a price identical to or very


close to the competition's price

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5 situations when price skimming is


successful

inelastic demand
unique advantages/superior
legal protection of product
technological breakthrough
blocked entry to competitors

Advantages of penetration pricing

can lead to lower cost per unit as


production expands
discourages or blocks competition from
market entry
boosts sales and provides large profit
increases

Disadvantages of penetration pricing

requires gear up for mass production


selling large volumes at low prices
strategy to gain market share may fail

Advantages of status quo pricing

simplicity
safest route to long-term survival for
small firms

Disadvantages of status quo pricing

strategy may ignore demand and/or


cost

High inflation involves what tactics

cost-oriented tactics
demand-oriented tactics

4 strategies to make demand more


inelastic

cultivate selected demand


create unique offerings
change the package design
heighten buyer dependence

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Recession involves what..

PricingConceptsandSettingtheRightPriceflashcards|Quizlet

value-based pricing
bundling or unbundling

3 new product traps

price benefits instead of value


manage customer risk with price
fail to manage post-launch price
trajectory

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