Chapter 13 Flashcards
Price
what is given up in an exchange to acquire goods or a service
Revenue
The price charged to customers multiplied by the number of units sold
Profit
What is left over after all activities have been paid
Pricing Objectives
Profit-orientated pricing objectives
- Profit maximisation
- Satisfactory profits
- Target return on investment
Sales-oriented pricing objectives
- Market share: firms product sales as % of total industry sales
- Sales maximisation
Status quo pricing objectives
- Maintain existing prices or meet the competition’s prices
Pricing tactics
- Discounts, allowances and rebates
- Trade loading- manufacturer temporarily lowers the price to induce wholesalers and retailers to buy more products
- Geographic pricing
- Special pricing tactics
enhancing product lines
- complementary items: an increase in the sale of one leads to an increase in demand for another
- substitute products: if buying one item, consumers are less likely to buy 2nd item in the product line
Pricing during difficult times: Inflation
Cost-oriented tactics
- culling products with a low profit margin
- delayed-quotation pricing
- escalator pricing
Demand-oriented tactics
- price shading
How to make price more inelastic
- cultivate selected demand
- create unique offerings
- change the package size
- heighten buyer dependence
Pricing during difficult times: Recession
Tactics:
value pricing
price bundling or unbundling
Tactics to use with suppliers:
Renegotiate contracts with suppliers
Offer help to suppliers
Keeping the pressure on
Paring down suppliers
Types of Demand
Elasticity of demand = consumers’ responsiveness or sensitivity to changes in price
Elastic demand = when consumers buy more or less of a product when the price changes
Inelastic demand = an increase or decrease in price will not significantly affect demand for the product
Unitary elasticity = an increase in sales exactly offsets a decrease in prices so that the total revenue remains the same
Factors that affect elasticity:
- Availability of substitutes
- Price relative to purchasing power
- Product durability
- A product’s other uses
