MKTG Final CH11

Demand - based pricing

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

Law of Demand Curve

as price goes up, quantity demanded goes down. steep line = inelastic demandestimating price elasticity of demand = %change in sales / %change in price

Cross-elasticity of demand

When changes in the price of one product affect the demand for another item.

Variable Costs

The cost of production that are tied to and vary depending on the number of units produced.

Fixed Costs

Costs of production that do not change with the number of units produced.

Total Costs

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

Break-even point

Point at which the total revenue and total costs are equal and beyond which the company makes a profit. the firm will suffer a loss below that point.

Contribution per unit

The contribution from each sale to fixed costs.

Marginal Analysis

A method that uses cost and demand to identify the price that will maximize profits.

Steps in Price Planning (DEDECD)

1 - Develop Pricing Objectives2 - Estimate Demand3 - Determine costs of goods sold4 - Evaluate the pricing environment5 - Chose a price Implementation strategy6 - Develop Pricing Tactics

Marginal Cost

Increase in total cos that results from producing one additional unit of a product.


The quantity of a product customers are going to buy.

Cost-plus pricing

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

Yield Management Pricing

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

Price Leadership

Pricing strategy where one firm sets it's price and other firm's in the industry follow with the same or very similar prices.

Value Pricing or everyday low pricing (EDLP)

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

Trial Pricing

Pricing a new product low for a limited period of time in order to lower the risk for a customer.

Skimming Price

A very high premium price a firm charges for a new products into stage.

Penetration Pricing

Pricing strategy where a firm introduces a product at a very low price to encourage more customers to purchase it.

Elastic Demand

Demand in which changes in price have large effects on the amount demanded.

Prestige Products

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

Price Bundling

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

Price Lining

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


An illegal marketing practice where an advertising price special is used as bait to get customers into the store with the intention of switching them to a higher product.

Loss Leader Pricing

A retail or manufacturer pricing policy of setting prices very low or even below costs on one product or product line to attract customers into a store.

Predatory Pricing

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

Dynamic Pricing

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