Exam 4 Flashcards
(29 cards)
What are the three foundations of pricing strategy?
Costs, potential demand, and competition.
How does costs influence pricing decisions?
A price must at least cover production costs; selling below cost is only sustainable short-term.
How does potential demand affect pricing?
Higher prices generally reduce consumer demand; context (like weather) can affect willingness to pay.
How does competition affect pricing?
Firms often adjust pricing to remain competitive and differentiate on factors like network speed or service conditions.
What are the three main pricing objectives?
Volume/sales, competition, and prestige.
What’s the difference between markup and margin?
Markup = % added to the cost
Margin = % of the sales price that is profit
What’s the difference between fixed and variable costs?
Fixed costs: stay the same (e.g., rent)
Variable costs: change with production (e.g., materials)
What is breakeven analysis?
It shows how many units must be sold at a given price to cover all costs.
What is the cost-volume-profit (CVP) relationship?
It analyzes how pricing and volume changes affect overall profitability.
What is price elasticity of demand?
It measures how sensitive consumers are to price changes.
- Elastic: Demand changes a lot with price.
- Inelastic: Demand doesn’t change much with price.
What are the determinants of elasticity?
Availability of substitutes, necessity vs luxury, and portion of income spent.
What are qualitative vs. quantitative forecasting methods?
Qualitative: based on expert opinions (e.g., Delphi, buyer surveys)
Quantitative: based on data and stats (e.g., trend analysis)
What are the three primary pricing strategies?
Skimming: High initial price
Penetration: Low entry price
Competitive: Match competitor prices and focus on other value areas
What are three common pricing tactics?
Psychological pricing (e.g., $9.99)
Product-line pricing (e.g., good/better/best model)
Promotional pricing (e.g., temporary discounts, loss leaders)
How does price affect perceived quality?
High prices often suggest high quality, but too high or too low can hurt credibility.
What are the four types of distribution channels?
Direct: Producer to consumer
Intermediaries: Wholesalers, retailers
Dual distribution: Combo of direct and indirect
Reverse channels: Returns, recycling
What are three functions of intermediaries?
Facilitate exchange, lower logistics costs, and expand sales infrastructure.
What five factors affect channel selection?
Market, product, organization, competition, intensity of distribution.
What are the three types of distribution intensity?
Intensive: As many retailers as possible
Selective: A few carefully chosen retailers
Exclusive: Only one or a few retailers in a region
What is the supply chain and its two directions?
The full flow from raw materials to customers
- Upstream: Raw materials to production
- Downstream: Production to consumer
What are key warehouse and storage priorities?
Inventory control, protective packaging, and warehousing strategy.
What are the five major modes of transportation?
Railroads, motor carriers, water, pipelines, and air.
What are the five components of the marketing environment?
Competitive, political-legal, economic, technological, and social-cultural.
What is the difference between direct and indirect competition?
Direct: Similar products (e.g., Coke vs. Pepsi)
Indirect: Substitutes (e.g., pizza vs. tacos)
