Chapter 10

Question 1

market share

Answer 1

The percentage of a market (defined in terms of either sales units or revenue) accounted for by a specific firm, product lines, or brands.

Question 2

prestige products

Answer 2

Products that have a high price and that appeal to status-conscious consumers.

Question 3

price elasticity of demand

Answer 3

The percentage change in unit sales that results from a percentage change in price. (eg if price falls 10% and we sell 5% more units)

Question 4

elastic demand

Answer 4

When changes in price have large effects on the amount demanded.

Question 5

inelastic demand

Answer 5

When changes in price have little or no effect on the amount demanded.

Question 6

variable costs

Answer 6

The costs of production (raw and processed materials, parts, and labor) that are tied to and vary, depending on the number of units produced.

Question 7

fixed costs

Answer 7

Costs of production that do not change no matter the number of units produced.

Question 8

total costs

Answer 8

The total of the fixed costs and the variable costs for a set number of units produced.

Question 9

markup

Answer 9

An amount added to the cost of a product to create the price at which a retailer will sell the product. (eg jeans cost $20 for Kohl’s to buy, and they sell them for $40. The $20 difference is the markup.)

Question 10

gross margin

Answer 10

The markup amount added to the cost of a product to cover the fixed costs of the retailer or wholesaler and leave an amount for a profit.

Question 11

list price or manufacturer’s suggested retail price (MSRP)

Answer 11

The price that the manufacturer says the consumer should pay

Question 12

cost-plus pricing

Answer 12

A method of setting prices in which the seller totals all the costs for the product and then adds an amount to arrive at the selling price.

Question 13

keystoning

Answer 13

retail pricing strategy in which the retailer doubles the cost of the item (100 percent markup) to determine the price.

Question 14

demand-based pricing

Answer 14

A price-setting method based on estimates of demand at different prices.

Question 15

target costing

Answer 15

A process in which firms identify the quality and functionality needed to satisfy customers and what price they are willing to pay before the product is designed

Question 16

yield management pricing

Answer 16

A practice of charging different prices to different customers to manage capacity while maximizing revenues.

Question 17

price leadership

Answer 17

A pricing strategy in which one firm first sets its price and other firms in the industry follow with the same or similar prices.

Question 18

value pricing

Answer 18

A pricing strategy in which a firm sets prices that provide ultimate value to customers.

Question 19

high/low pricing

Answer 19

A retail pricing strategy in which the retailer prices merchandise at list price but runs frequent, often weekly, promotions that heavily discount some products.

Question 20

skimming price

Answer 20

A very high, premium price that a firm charges for its new, highly desirable product.

Question 21

penetration pricing

Answer 21

A pricing strategy in which a firm introduces a new product at a very low price to encourage more customers to purchase it.

Question 22

price segmentation

Answer 22

the practice of charging different prices to different market segments for the same product.

Question 23

peak load pricing

Answer 23

A pricing plan that sets prices higher during periods with higher demand.

Question 24

Surge pricing

Answer 24

A pricing plan that raises prices of a product as demand goes up and lowers it as demand slides.

Question 25

bottom of the pyramid pricing

Answer 25

Innovative pricing that will appeal to consumers with the lowest incomes by brands that wish to get a foothold in bottom of the pyramid countries.

Question 26

two-part pricing

Answer 26

Pricing that requires two separate types of payments to purchase the product.

Question 27

payment pricing

Answer 27

A pricing tactic that breaks up the total price into smaller amounts payable over time. (eg an iPhone)

Question 28

decoy pricing

Answer 28

A pricing strategy where a seller offers at least three similar products; two have comparable but more expensive prices and one of these two is less attractive to buyers, thus causing more buyers to buy the higher priced more attractive item.

Question 29

price bundling

Answer 29

Selling two or more goods or services as a single package for one price.

Question 30

captive pricing

Answer 30

A pricing tactic for two items that must be used together; one item is priced very low, and the firm makes its profit on another, high-margin item essential to the operation of the first item.

Question 31

F.O.B. origin pricing

Answer 31

A pricing tactic in which the cost of transporting the product from the factory to the customer’s location is the responsibility of the customer.

Question 32

F.O.B. delivered pricing

Answer 32

A pricing tactic in which the cost of loading and transporting the product to the customer is included in the selling price and is paid by the manufacturer.

Question 33

uniform delivered pricing

Answer 33

A pricing tactic in which a firm adds a standard shipping charge to the price for all customers regardless of location.

Question 34

freight absorption pricing

Answer 34

A pricing tactic in which the seller absorbs the total cost of transportation.

Question 35

trade discounts

Answer 35

Discounts off list price of products to members of the channel of distribution who perform various marketing functions.

Question 36

quantity discounts

Answer 36

A pricing tactic of charging reduced prices for purchases of larger quantities of a product.

Question 37

cash discounts

Answer 37

A discount offered to a customer to entice them to pay their bill quickly.

Question 38

seasonal discounts

Answer 38

Price reductions offered only during certain times of the year.

Question 39

dynamic pricing

Answer 39

A pricing strategy in which the price can easily be adjusted to meet changes in the marketplace.

Question 40

price lining

Answer 40

The practice of setting a limited number of different specific prices, called price points, for items in a product line.

Question 41

freemium pricing

Answer 41

A business strategy in which a product in its most basic version is provided free of charge but the company charges money (the premium) for upgraded versions of the product with more features, greater functionality, or greater capacity.

Question 42

internal reference price

Answer 42

A set price or a price range in consumers’ minds that they refer to in evaluating a product’s price.

Question 43

prestige/premium pricing

Answer 43

A pricing strategy used by luxury goods marketers in which they keep the price artificially high to maintain a favorable image of the product.

Question 44

bait-and-switch

Answer 44

An illegal marketing practice in which an advertised price special is used as bait to get customers into the store with the intention of switching them to a higher-priced item.

Question 45

loss-leader pricing

Answer 45

The pricing policy of setting prices very low or even below cost to attract customers into a store.

Question 46

unfair sales activities

Answer 46

State laws that prohibit suppliers from selling products below cost to protect small businesses from larger competitors.

Question 47

price fixing

Answer 47

The collaboration of two or more firms in setting prices, usually to keep prices high.

Question 48

predatory pricing

Answer 48

An illegal pricing strategy in which a company sets a very low price for the purpose of driving competitors out of business.