Chapter 9 - Pricing

Question 1

Equation for pricing

Answer 1

profit = total revenue - total cost 
profit = (unit price x quantity sold) - total coast

Question 2

what is price?

Answer 2

total value exchanged for benefits of having/using the product

Question 3

4 approaches to pricing

Answer 3

demand oriented

cost oriented

profit oriented

competition oriented

Question 4

demand oriented pricing

Answer 4

market skimming 
penetration
prestige 
odd even 
target 
bundle 
yield management 
loss leaders
dynamic pricing

Question 5

market skimming

Answer 5

high initial price to skim revenue from those willing to pay

Question 6

market penetration

Answer 6

low initial price to penetrate market and gain market share due to price sensitivity
(works with price sensitive customers)

Question 7

product line pricing aka price lining

Answer 7

setting prices across an entire product line

Question 8

optional product pricing

Answer 8

pricing optional products sold with main product

Question 9

captive product pricing

Answer 9

pricing products which must be used with main product

Question 10

by product pricing

Answer 10

pricing by products to maximize revenues

Question 11

product bundle pricing

Answer 11

pricing a bundle of individual products at a price lower than if purchased separately

Question 12

prestige pricing

Answer 12

high prices attract quality or status

Question 13

odd even pricing

Answer 13

setting prices a dollar or cent under an even number

over used and has less effect

Question 14

target pricing (customer value)

Answer 14

offering just the right combination of quality and service at the price consumers are willing to pay

Question 15

yield management pricing

Answer 15

charging different prices to maximize revenue

ex) airlines

Question 16

loss leaders

Answer 16

deliberately offering some high demand products at very low prices

Question 17

price adjustment strategy talked about in class

Answer 17

dynamic pricing

Question 18

dynamic pricing

Answer 18

allows price to change as customer and situational forces change

Question 19

what is the main goal of cost oriented approaches?

Answer 19

to cover direct expenses.

Question 20

% of markup is relative to …

% of margin is relative to…

Answer 20

% markup relative to cost

% margin relative to price

Question 21

formula for total cost

Answer 21

total cost = fixed cost + variable cost

Question 22

fixed cost

Answer 22

sum of expenses of the firm that are stable and do not change with the quantity of product that is produced and sold
ex) rent, salaries, insurance

Question 23

variable cost

Answer 23

sum of the expenses of the firm that vary directly with the quantity of product that is produced and sold
ex) direct labor and materials used

Question 24

total cost

Answer 24

fixed cost + variable cost

Question 25

break even analysis

Answer 25

analyzes relationship between total revenue and total cost to determine profitability at various levels of output

Question 26

profit oriented approaches

Answer 26

target pricing target return on sales target return on investments

Question 27

formula for return on investment

Answer 27

(gain attributed to investment - cost of invesment) divided by cost of investment

Question 28

demand curve

Answer 28

shows number of products that are sold at given price

Question 29

price elasticity

Answer 29

how sensitive consumer demand and the firm's revenues are to changes in the product's price high elasticity means small change, high change in demand

Question 30

3 different pricing objectives

Answer 30

maximizing profit managing long run profits target return

Question 31

limiting factors of price

Answer 31

demand for the product class, product, and brand newness of the product: stage in the PLC cost of producing and marketing the product competitors prices

Question 32

pricing within channel levels

Answer 32

``` price fixing (price collusion) predatory pricing: forcing rivals to exit ```

Question 33

pricing across channel levels

Answer 33

price discrimination: different prices to different consumers retail price maintenance: MSRP only deceptive pricing: not honouring advertised price

Question 34

bait and switch pricing

Answer 34

baited with low and switched with high price product uses technique like not having it in stock

Question 35

bargains conditional on other purchases

Answer 35

advertisement at buy one get one free if price of first item is marked up that's deceptive

Question 36

price comparisons

Answer 36

things like saying it's below retail value but really the region isn't at retail value advertising "below manufacturer's suggested list price" with reduced prices, this is deceptive if the item was not offered for sale at the regularly high price for a substantial previous period of time

Question 37

double ticketing

Answer 37

when more than one price tag, the lower price is charged

Question 38

dumping

Answer 38

foreign firm sells things below domestic price because receiving loans from government

Question 39

grey market (parallel importing)

Answer 39

situations where products are sold through unauthorized channels of distribution

Question 40

steps of setting final price

Answer 40

1. select approx price 2. set the list or quoted price (through one price policy or flexible price policy) 3. make adjustments to list or quoted price 4. monitor

Question 41

allowances

Answer 41

are reductions for rewarding particular activity trade in allowances promotional allowances

Question 42

standard mark up

Answer 42

the difference between selling price and cost, expressed as percentage

Question 43

loss leader pricing

Answer 43

deliberately sell commonly used products such as paper towels soft drinks and facial tissues at a low price to attract consumers

Question 44

3 other key factors in demand curve

Answer 44

consumer tastes price and availability of similar products consumer income

Question 45

what is the break even point?

Answer 45

quantity at which total revenue and total cost are equal profit happens after BEP. BEP = fixed cost over (unit price - unit variable cost)