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chapter 13 Flashcards

1
Q

The price…

A

·The price must be “right”-in the sense that customers must be willing to pay it; it must generate enough sales dollars to pay for the cost of developing, producing, & marketing the product; and it must earn a profit for the company

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2
Q

Price

A

the money or other considerations (including other products/servs) exchanged for the ownership or use of a product/serv

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3
Q

Barter

A

the practice of exchanging products/servs for other products/serv rather than for money

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4
Q

The Price Equation

A

the amount paid is not always the same as the list, or quoted price because of discounts, allowances, and extra fees

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5
Q

final price equation

A

list price - allowances + extra fees

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6
Q

Value

A

the ratio of perceived benefits to price

› From a consumer’s standpoint, price is often used to indicate value when it’s compared w/ perceived benefits, such as quality or durability of a product/serv
› As perceived benefits increase, value increases
› As value decreases, perceived benefits decrease

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7
Q

Value =

A

Perceived benefits / Price

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8
Q

Value Pricing

A

the practice of simultaneously increasing product/serv benefits while maintaining or decreasing price

› Price influences consumers’ perceptions of overall quality & ultimately its value to them
› The higher the price, the higher the quality
› Value involves the judgement by a consumer of the worth of a product/serv relative to substitutes that satisfy the same need. Through the process of comparing the costs & benefit of substitute items, a reference value emerges

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9
Q

Reference Price

A

internal or external price against which a customer compares an observed price

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10
Q

Internal Reference price

A

internal to you based on your memory/understanding of things, previous shopping experiences, etc

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11
Q

External Reference Price

A

based on the price tag, conversations with friends, promotions, ads, etc

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12
Q

Profit Equation

A

Profit = Total Revenue - Total Cost

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13
Q

Six Major Steps in the Process Orgs Go Through in Setting Prices

A
  1. Identifying Pricing Objectives & Constraints
  2. Estimate Demand & Revenue
  3. Determine Cost, Volume, & Profit Relationships
  4. Select An Appropriate Price Level
  5. Set List or Quoted Price
  6. Make Special Adjustments to List or Quoted Price
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14
Q

Step 1: Identifying Pricing Objectives & Constraints

A

pricing objectives & constraints

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15
Q

Pricing Objectives

A

specifying the role of price in an org’s marketing & strategic plans

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16
Q

Six Pricing Objectives

A
  1. Profit
  2. Sales revenue
  3. Market share
  4. Unit volume
  5. Survival
  6. Social responsibility
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17
Q

Profit

A

three different obj often measured in terms of return on investment (ROI) or return on assets (ROA)

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18
Q

Profit Objectives

A
  1. managing for long-run profits
  2. maximizing current profit
  3. target return
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19
Q

Managing for Long-Run Profits Obj

A

comps give up immediate profit by developing quality products to penetrate competitive markets over the long term. Products are priced relatively low compared to their cost to develop, but the firm expects to make greater profits later bc of its high market share

Ex: HDTV manufacturers

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20
Q

Maximizing Current Profit Obj

A

such as for a quarter or year, is common in many firms bc the targets can be set & performance measured quickly

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21
Q

Target Return Obj

A

occurs when a firm sets a profit goal (such as 20% for pretax ROI), usually determined by its board of directors

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22
Q

Sales Revenue Objective

A

an obj may be to increase sales revenue, which can lead to increases in market share & profit

  • Translated easily into meaningful targets for marketing managers responsible for a product line/brand
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23
Q

Market Share

A

is the ratio of the firm’s sales revenues or unit sales to those of the industry (competitors plus the firm itself)

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24
Q

Market Share Objective

A

Comps often pursue a market share obj when industry sales are relatively flat/declining

Ex: P&G (Pampers) & Kimberly-Clark (Huggies) cut their U.S. prices for disposable baby diapers to maintain their respective U.S. market shares given the continuing decline in the U.S. birthrate

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25
Unit Volume
the quantity produced or sold - These firms often sell multiple products at very different prices & need to match the unit volume demanded by customers with price & production capacity - Can be counterproductive if unit volume obj is achieved, by drastic price that drives down profit
26
Survival
trying to survive bc of competition Ex: RadioShack closed down bc it couldn't compete w/ competitor's prices
27
Social Responsibility
obj recognizes its obligations to customers & society in general Ex: Gerber supplies a specially formulated product free of charge to children who cannot tolerate foods containing cow's milk
28
Pricing Constraints
factors that limit the range of prices a firm may set
29
Seven Pricing Constraints
1. Demand 2. Product newness 3. Other products sold by the firm 4. Production & marketing costs 5. Cost of price changes 6. Type of competitive market 7. The price of competitive substitutes
30
Demand for the Product Class, Product Group, & Brand:
The greater the demand for the product, the higher the price that can be set Ex: New York Mets set different ticket prices for their games based on the appeal of their opponent - prices are higher when they play the NY Yankees & lower when they play the Pittsburgh Pirates
31
Newness of the Product
the newer a product & the earlier it is in its life cycle, the higher the price that can usually be charged Ex: $4,500 for a new Samsung TV - Sometimes when nostalgia/fad factors come into play prices may rise later in the product's life cycle Ex: Collectibles experience skyrocketing prices
32
Cost of Producing and Marketing the Product
ensure that firms in their channels of distribution make an adequate profit. Without profits for channel members, a marketer is cut off from its customers Ex: Of the $200 a customer spends for a pair of jeans, 50% goes to the retailer, 50% goes to the marketer (34%) & manufacturers and suppliers (16%)
33
Cost of Changing Prices & Time Period They Apply
prices can change from minute to minute due to the transparency of prices afforded online Ex: Apple introduced its first iPhone, it set the price for its single product since it was successful & no one could compare Ex: Since Apple kept producing more & more phones they had to price them relative to each other
34
Type of Competitive Market
price is constrained by the type of market it competes in
35
4 Types of Markets
1. Pure Competition 2. Monopolistic Competition 3. Oligopoly 4. Monopoly
36
Pure Competition
many sellers who follow the market price for identical, commodity products Ex: Hundreds of local grain elevators sell corn whose price per bushel is set by the marketplace. Within strains, the corn is identical, so advertising only informs buyers that the seller's corn is available
37
Monopolistic Competition
many sellers who compete on nonprice factors Ex: Many regional/private brands of peanut butter compete w/ national brands like Jif & Skippy. Both price competition & nonprice competition (product features/advertising) exist
38
Oligopoly
few sellers who are sensitive to each other's prices
39
Pure Monopoly
one seller who sets the price for a unique product
40
Competitors' Prices & Consumers' Awareness of Them:
competitor's prices are important only if a prospective buyer both (1) knows about those prices & (2) can act to purchase them easily
41
Competitor changes & price transparency through the Internet & efficient distribution make possible
(1) consumer-driven pricing actions & (2) seller-or retailer- driven pricing actions
42
Consumer-Driven Pricing Actions
consumers are able to compare prices on the Internet, which means they can make more efficient buying decisions Ex: Consumer visits the HDTV section of a store to actually examine a TV- & then goes home and orders it online at a lower price
43
Seller or Retailer-Driven Pricing Actions
aggressive price changes through the Internet Ex: Amazon changed the raised & lowered the price of the Xbox during a week
44
Step 2: Estimate Demand & Revenue
estimates demand & revenue
45
Demand Curve
a graph that relates the quantity sold & price, showing the maximum number of units that will be sold at a given price - Price is not the only thing when estimating demand
46
Three Key Factors That Influence Demand for a Product:
Consumer Tastes Price & Availability of Similar Products Consumer Income
47
Consumer Tastes
depend on demographics, culture, technology Ex: If research by nutritionists concludes that some pizzas are healthier (bc they're now gluten-free or vegetarian), demand for them will probably increase -Influences what customers want to buy
48
Price & Availability of Similar Products
if the price of a competitor's product that is a substitute for yours falls, more ppl will buy it; its demand will rise & the demand for your product will fall Ex: If you want something fast so you can study, you could call Domino's or a local Chinese restaurant & order a meal for home delivery. So, as the price of a substitute falls or its availability increases, the demand for your Red Baron pizza will fall -Influences what customers want to buy
49
Consumer Income
as real consumers' incomes increase (allowing for inflation), demand for a product will also increase Ex: If you get a scholarship & have extra cash for discretionary spending, you might eat more Red Baron frozen pizzas & fewer PB&Js -Affects what they can buy
50
Demand Factors
factors that determine consumers' willingness & ability to pay for products & servs
51
Movement Along A Demand Curve
assumes that other factors (consumer tastes, price & availability of substitutes, & consumers' incomes) remain unchanged
52
Shift In The Demand Curve
other factors do change (ex. shift to the right)
53
Price Elasticity of Demand
the percentage change in quantity demanded relative to a percentage change in price
54
Price Elasticity of Demand
Price Elasticity of Demand (E) = Percentage change in quantity demanded / percentage change in price
55
Two Forms of Price Elasticity of Demand
Elastic Demand Inelastic Demand
56
Elastic Demand
a 1 percent decrease in price produces more than a 1 percent increase in quantity demanded, thereby actually increasing total revenue - A product w/ elastic demand is one in which a slight decrease in price results in a relatively large increase in demand/units sold & vice versa - The more substitutes a product/serv has, the more likely it is to be price elastic - Items that require a large cash outlay compared w/ a person's disposable income are price elastic Ex: A new sweater, shirt, or blouse has many substitutes & is price elastic Ex: Airline tickets, Cars
57
Inelastic Demand
a 1 percent decrease in price produces less than a 1 percent increase in quantity demanded, thereby actually decreasing total revenue - Products/servs considered to be necessities are price inelastic Ex: Gasoline has almost no substitutes & is price inelastic Ex: Open-heart surgery, toothpaste, soft drinks
58
Total Revenue (TR)
the total money received from the sale of a product
59
Total Revenue (TR)
› Total Revenue (TR) equals the unit price (P) times the quantity sold (Q) › TR = P X Q
60
Step 3: Determine Cost, Volume, & Profit Relationships
Determines Cost, Volume, & Profit Relationships
61
Total Cost (TC)
the total expense incurred by a firm in producing and marketing a product. -Total cost is the sum of fixed cost and variable cost. - TC = FC + VC
62
Fixed Cost (FC)
The sum of the expenses of the firm that are stable and do not change with the quantity of a product that is produced & sold Ex: Rent on the building, executive salaries, insurance
63
Variable Costs (VC)
the sum of the expenses of the firm that vary directly with the quantity of a product that is produced & sold Ex: Direct labor & direct materials used in producing the product & the sales commissions that are tied directly to the quantity sold
64
Unit Variable Cost (UVC)
variable cost expressed on a per unit basis for a product - UVC = VC / Q
65
Contribution Margin (CM)
expressed on a per unit basis as the difference between unit selling price (P) and unit variable cost (P − UVC), or as a percent: CM = P - UVC /P X 100
66
Break-even Analysis
a technique that analyzes the relationship between total revenue & total cost to determine profitability at various levels of output
67
break-even point (BEP)
the quantity at which total revenue and total cost are equal BEPquantity = FC / P - UVC
68
Break-even Chart
a graphic presentation of the break-even analysis that shows when total revenue and total cost intersect to identify profit or loss for a given quantity sold
69
Breakeven Price
Total FC / # of units + Unit VC

Marketing (22 decks)

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