MKT 3501 Ch 8,10-12


the amount of money charged for a product or service, or the sum of all the values that customers exchange for the benefits of having or using the product or service

Value-based pricing

Uses the buyers' perceptions of value rather than the seller's cost; customer driven

Cost-based pricing

sets prices based on the costs for producing, distributing, and selling the product plus a fair rate of return for effort and risk; product driven

Good-value pricing

offering just the right combination of quality and good service at a fair price

Everyday low pricing (EDLP)

involves charging a constant everyday low price with few or no temporary price discounts

Value-added pricing

attaches value-added features and services to differentiate the companies offers and thus their higher prices

Fixed costs

the costs that do not vary with production or sales level: rent, heat, interest, executive salaries

Variable costs

vary directly with the level of production: raw materials, packaging

Total costs

the sum of the fixed and variable costs for any given level of production

Cost-plus pricing

adds a standard markup to the cost of the product.
Benefits: sellers are certain about costs, price competition is minimized, buyers feel it is fair
Disadvantages: ignores demand and competitor prices

Break-even pricing (target return pricing)

setting price to break even on costs or to make a target return

Competition-based pricing

setting prices based on competitors' strategies, costs, prices, and market offerings

Target costing

starts with an ideal selling price based on consumer value considerations and then targets costs that will ensure that the price is met

Demand curve

shows the number of units the market will buy in a given period at different prices; demand and price are inversely related; higher price=lower demand

Price elasticity

a measure of the sensitivity of demand to changes in price

Inelastic demand

demand hardly changes with a small change in price

Elastic demand

demand changes greatly with a small change in price

Market-skimming pricing

sets high initial prices to "skim" revenue layers from the market; product quality and image must support the price; buyers must want the product at the price

Market-penetration pricing

involves setting a low price for a new product in order to attract a large number of buyers and a large market share

Product line pricing

takes into account the cost differences between products in the line, customer evaluations of their features, and competitors' prices

Optional product pricing

takes into account optional or accessory product along with the main product

Product mix pricing strategies

product line pricing, optional product pricing, captive product pricing, by-product pricing, product bundle pricing

Captive product pricing

sets prices of products that must be used along with the main product

By-product pricing

sets a price for by-products in order to make the main product's price more competitive

Product bundle pricing

combines several products at a reduced price

Price cuts occur due to

excess capacity, increased market share

Price increases occur due to

cost inflation, increased demand, lack of supply

Buyer reaction to price increases

product is "hot", company greed

Buyer reaction to price cuts

new models will be available, models are not selling well, quality issues

Competitor reactions to pricing changes

Why did the competitor change the price? Is the price cut permanent or temporary? Is the company trying to grab market share? Is the company doing poorly and trying to increase sales? Is it a signal to decrease industry prices to stimulate demand?

Effective action responses to price changes

reduce price to math competition, maintain price but raise the perceived value through communications, improve quality and increase price, launch lower-price "fighting" brand

External factors affecting price decisions

economic conditions, reseller's response to price, government, social concerns

Organizational considerations affecting price decisions

Who should set prices? Who can influence prices?

Product quality

the characteristics of a product or service that bear on its ability to satisfy stated or implied customer needs: total quality management, return-on-quality, quality level, quality consistency

Product features

competitive tool for differentiating a product from competitors' products; assessed based on the value to the customer versus its cost to the company


the appearance of the product


contributes to a product's usefulness as well as to its looks


the name, term, sign, or design or combination of these, that identifies the maker or seller of a product or service


designing and producing the container or wrapper for a product


identify the product or brand, describe attributes, and provide promotion

Product line

a group of products that are closely related because they function in a similar manner, are sole to the same customer groups, are marketed through the same types of outlets, or fall within given price ranges

Product line length

number of items in the product line: line stretching, line filling

Product mix

consists of all the product lines and items that a particular seller offers for sale: width, length, depth, consistency

Types of service industries

government, private not-for-profit organizations, business organizations

Four service characteristics

Intangibility, inseparability, variability, perishability


services cannot be seen, tasted, felt, held, or smelled before purchase


services cannot be separated from their providers


Quality of services depends on who provides them and when, where, and how


services cannot be stored for later sale or use

Service-profit chain

links service firm profits with employee and customer satisfaction: internal service quality, satisfied and productive service employees, greater service value, satisfied and loyal customers, healthy service profits and growth

Internal marketing

the service firm must orient and motivate its customer-contact employees and supporting service people to work as a team to provide customer satisfaction

Interactive marketing

service quality depends heavily on the quality of the buyer-seller interaction during the service encounter: service differentiation, service quality, service productivity

Managing service differentitation

creates a competitive advantage: offer, delivery, image

Managing service quality

enables a service firm to differentiate itself by delivering consistently higher quality than its competitors provide

Managing service productivity

the cost side of marketing strategies for service firms: employee hiring and training, service quantity and quality

Brand equity

the differential effect that knowing the brand name has on customer response to the product or its marketing

Brand value

the total financial value of a brand

Brand positioning

marketers can position brands at any of three levels: attributes, benefits, beliefs and values

Brand name selection

suggests benefits and qualities; easy to pronounce, recognize, and remember; distinctive; extendable; translatable for the global economy; capable of registration and legal protection

Brand sponsorship

manufacturer's brand, private brand, licensed brand, co-brand

Brand development strategies

line extension (existing product category, existing brand name); brand extension (new product category, existing brand name); multibrands (existing product category, new brand name); new brands (new product category, new brand name)

Upstream partners

firms that supply raw materials, components, parts, information, finances, and expertise needed to create a product or service

Downstream partners

the marketing channels or distribution channels that look toward the customer, including retailers and wholesalers

Supply chain

make and sell" view includes that firm's raw materials, productive inputs, and factory capacity

Demand chain

sense and response" view suggests that planning starts with the needs of the target customer

Value delivery network

composed of the company, suppliers, distributors, and customers who partner with each other to improve the performance of the entire system

Marketing channel (distribution channel)

set of interdependent organizations that help make a product or service available for use or consumption by the consumer or business user

How channel members add value

transform the assortment of products into assortments wanted by consumers; bridge the major time, place, and possession gaps that separate goods and services from users (information, promotion, contact, matching, negotiation, physical distribution, financ

Marketing channels

consist of firms that have partnered for their common good with each member playing a specialized role

Channel conflict

disagreement among channel members over goals, roles, and rewards: horizontal conflict, vertical conflict