Marketing chapter 13


.The money or other considerations (including other goods and services) exchanged for the ownership or use of a good or service


.exchanging goods and services for other goods and services


.defined as the ratio of perceived benefits to price

value pricing

.increasing product or service benefits while maintaining or decreasing price
.low price can sometimes (not always) imply possible poor quality and ultimately poor perceived value

reference value

.involves comparing the prices and benefits of substitute items

profit equation

. profit=total revenue- total cost, or profit= (unit price x quantity sold)- total cost
.price in the marketing mix

marketing mix - 4p's

A unique blend of product, place, promotion, and pricing strategies designed to produce mutually satisfying exchanges with a target market.

step 1. identify pricing constraints and objectives

.constraints like demand for product class and brand newness costs(stage in product life cycle), competition, single product versus a product line, cost of producing and marketing a product,
.objectives like profit, market share, and survival

step 2. Estimate demand and revenue

.demand estimation
.price elasticity estimation
.revenue estimation

step 3. Estimate cost, volume, and profit relationships

.cost estimation
.break-even analysis, relation to profit

step 4. Select an appropriate price level

. demand oriented approaches
.cost oriented approaches
.profit oriented approaches
.competition oriented approaches

step 5. Set list of quoted price

.One price or flexible prices
.Company customer, and competitive effects

step 6. Make special adjustments to list or quoted price

.geographical adjustments

pricing constraints

.factors that limit the latitude of price a firm may set (inside and outside the organization)

demand for a product, and brand

.the number of potential buyers for the product class or brand clearly affects the price a seller can charge.
.is it a luxury item, or necessity

Newness of the product

.what is it's stage in the product life cycle
.the newer a product and earlier it is in the life cycle, the higher the price that can usually be charged.

single product versus a product line

.can you build off the success of the single unique product into developing a product line in which you can add more features and price differentials to communicate value to consumer

cost of producing and marketing the product

.in the long run, a firms price must cover all the costs of producing and marketing a product. if the price does not cover the cost the firm will fail, and in the long term, a firms costs set a floor under it's price.

price change and time periods

.ex. increasing the costs of sweaters during the winter - most companies do this pricing strategy at least once a year due to demand

pure monopoly

.A market structure in which one firm sells a unique product, into which entry is blocked, in which the single firm has considerable control over product price, and in which nonprice competition may or may not be found
.one seller who sets the price for a


.(economics) a market in which control over the supply of a commodity is in the hands of a small number of producers and each one can influence prices and affect competitors
.few sellers who are sensitive to each other's prices

monopolistic competition

.a market structure in which many companies sell products that are similar but not identical
.many sellers who compete on non-price factors

pure competition

.A large number of suppliers offer very similar products.
.many sellers who follow the market price for identical, commodity products

pricing objectives

.expectations that specify the role of price in an organizations marketing and strategic plans


.managing for long-run products for future market penetration; maximizing current profit objective so that targets can be set and performance measured quickly; target return


.hopes that the increase of sales revenue will in turn, lead to the increase in market share and profit

market share

.the ratio of the firm's sales revenues or units sales to those of the industry (competitors plus the firm itself)
.the objective occurs when industry sales are relatively flat or declining

unit volume

the quantity produced or sold


Process by which individuals that are better suited to their environment survive and reproduce most successfully; also called natural selection (but with products)

social responsibility

An organization's obligation to maximize its positive impact and minimize its negative impact on society

demand curve

A graph of the relationship between the price of a good and the quantity demanded
.the summation of points representing the maximum number of products consumers will buy at a give price

consumer tastes

the preference towards different products by a consumer. causes change in demand
.what consumers WANT to buy

price and availability

the current price of the item and whether the quantity is available when needed
.what consumers WANT to buy

consumer income

the demand shifter that deals with the difference between normal and inferior goods
.allows inflation
.what consumer CAN buy

price elasticity of demand

.the percentage change in quantity demanded relative to a percentage change in price

elastic demand

A situation in which consumer demand is sensitive to changes in price

inelastic demand

A situation in which an increase or a decrease in price will not significantly affect demand for the product

total revenue

Price x Quantity
.the total money received from the sale of a product

total cost

.the total expenses incurred by a firm in producing and marketing a product

fixed cost

.the firms expenses that are stable and do not change with the quantity of product that is produced and cost

variable cost

.the sum of the expenses of a firm that vary directly with the quantity of products that is produced and sold

break-even analysis

.a technique that analyzes the relationship between total revenue and total cost to determine profitability at various levels of output
.break even point= fixed cost/ unit price- unit variable cost

approximate price level

.demand oriented, cost oriented, profit oriented, competition oriented

skimming pricing

.the highest initial price that customers really desiring a product are willing to pay

penetration pricing

.setting a low initial price on a new product to appeal immediately to the mass market

prestige pricing

.setting a high price on a product to attract quality- or status- conscious consumers

price lining

.pricing a line of products at a number of different specific pricing points

odd-even pricing

.setting prices a few dollars or cents under an eve number

target pricing

.the practice of deliberately adjusting the composition and feature of a product to achieve the target price to consumers

bundle pricing

.the marketing of two or more products in a single "package" price
.here lies a bargain

yield management pricing

.the charging of different prices to maximize revenue for a set amount of capacity at any given time

standard markup pricing

.adding a fixed percentage to the cost of all items in a specific product class

cost-plus pricing

.summing the total unit cost of providing a product or service and adding a specific amount to the cost to arrive at a price

experience curve pricing

.pricing method based on production experience, that is, the unit cost of many products and services declines by 10 to 30 percent each time a firm's experience at producing and selling them doubles

target profit pricing

.pricing method based on an annual target of a specific dollar volume of profit

target return on-sales pricing

.setting typical prices that will give a firm a profit that is a specific percentage

target return-on-investment

.setting prices to achieve return-on-investment (ROI) targets

customary pricing

.setting prices dictated by tradition, standardized channels of distribution, or other competitive factors

above-at, or below-market pricing

.setting prices based on pricing of similar products in the market

loss-leader pricing

.selling products below their customary prices to attract attention to them in the hope that customers will buy other products as well

one-price policy

.also called fixed pricing
.setting one price for all users of a product

flexible-price policy

.also called dynamic pricing
.setting different prices for products and services depending on individual buyers and purchase situations

company effects

expenses, overhead, cost of components

customer effects

price sensitivity

competitive effects

price war; product offerings similar to yours


Reductions from list price given by a seller to buyers who either give up some marketing function or provide the function themselves

quantity discounts

Discounts offered to encourage customers to buy in larger amounts

seasonal discounts

discounts offered to encourage buyers to buy earlier than present demand requires

trade discounts

.(Functional discounts) Discounts offered to channel members for performing certain functions like storing or record keeping.

cash discounts

discounts from quoted prices as an inducement for prompt payment of invoices.

trade-in allowances

price reductions given for turning in an old item when buying a new one

promotional allowances

a payment to a dealer for promoting the manufacturer's products

every day low pricing

continuous low prices as opposed to relying on short-term price-cutting tactics such as cents-off, rebates, and special sales

fob origin pricing

A price tactic that requires the buyer to absorb the freight costs from the shipping point ("free on board")

uniform delivered pricing

making an average freight charge to all buyers

price fixing

An agreement among firms to charge one price for the same good
.illegal under the competition act

horizontal price fixing

Occurs when competitors that produce and sell competing products collude, or work together, to control prices, effectively taking price out of the decision process for consumers.

vertical price fixing

occurs when parties at different levels of the same marketing channel (e.g., manufacturers and retailers) collude to control the prices passed on to consumers.

resale price maintenance

manufacturers try to force retailers to sell their products at a certain price, and if the retailer dropped the price too low, the manufacturer would punish the retailer by withholding merchandise or refusing agreed upon discounts

price discrimination

Division of customers into groups based on how much they will pay for a good
.prohibited under competition act
.must have ethical issues involved

deceptive pricing

The pricing of goods and services in such a way as to cause a customer to be misled

bait and switch

A store advertises bargains that do not really exist to lure customers in, in hopes that they will buy more expensive merchandise.

bargains conditional on other purchases

buy one get one free" and " get 2 for the price of 1) Such pricing is legal only if the frst item are sold at the regular price, not a price inflated for the offer. Substituting lower quality items on either the first or the second purchase is also cons

comparable value comparisons

advertising such as retail value 100, our price 85 is deceptive if a verified and substantial number of stores in the market area did no price the item at 100

comparisons with suggest prices

A claim that a price is below a manufacturer's suggested or list price may be deceptive if few or no sales occur at theat price in a retailer's market area.

former price comparisons

When a seller represents a price as reduced, the item must have been offered in good faith at a higher price for a substantial previous period. Setting a high price for the purpose of establishing a reference for a price reduction is deceptive.

predatory pricing

selling a product below cost to drive competitors out of the market

delivered pricing

When seller quotes prices such that all customer in a regional area pay same price regardless of actual distance. It is illegal.