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MKT Chapter 10 (1,2,3,5)

question
price
answer
assignment of value, or the amount the consumer must exchange to receive the offering or product.
question
Elements of price planning (6 steps)
answer
1. Set Pricing Obj. (profit, sales, market share...)
2. Estimate Demand (shifts in demand, price elasticity of demand)
3. Determine costs (variable costs, fixed costs, break-even analysis, markups & margins)
4. Examine the Pricing Environment (economy, competition, govt regulation, consumer trends)
5. Choose a Pricing Strategy (based on cost, demand, competition, customers' needs)
6. Develop Pricing Tactics (for individual, multiple products, distribution-based tactics...)
question
Q. Which of the following pricing tactics is used when price reductions are offered only during a certain time of the​ year?
answer
seasonal discounts
question
Q. Which of the following refers to an amount added to the cost of a product to create the price at which a channel member will sell the​ product?
answer
Markup
question
Q. Which of the following refer to the assignment of​ value, or the amount the consumer must exchange to receive the offering or​ product?
answer
Price
question
Q. Which of the following refers to the costs of production that vary depending on the number of units​ produced?
answer
variable cost
question
Q. Which of the following refers to a deceptive pricing tactic in which an advertised price special is used as bait to get customers into the store with the intention of selling them to a​ higher-priced item?
answer
bait-and-switch
question
Q. Which of the following refers to demand in which changes in price have large effects on the amount​ demanded?
answer
elastic demand
question
Q. Which of the following is an illegal pricing strategy in which a company sets a very low price for the purpose of driving competitors out of​ business?
answer
Predatory pricing
question
Q. Which of the following occurs when two or more companies conspire to keep prices at a certain​ level?
answer
price fixing
question
Q. Which of the following refers to the percentage of a​ market, defined in terms of either sales units or​ revenue, accounted for by a specific​ firm, product​ lines, or​ brands?
answer
Market share
question
5 major forms of Pricing Objectives
answer
-sales or mkt share
-profit
-competitive effect
-customer satisfaction
-image enhancement
question
4 Factors in Price Setting
answer
-costs
-demands
-revenue
-pricing environment
question
Demand curve for Normal vs. Prestige Products
answer
Normal - downward sloping; as prices go up, quantity demanded declines.
Prestige- half circle upward; as price increases, so does demand for the product
question
upward shift in demand curve
answer
means that at any given price, demand is greater than before the shift occurs. Customers will be willing to purchase the quantity at the given price.
question
Price elasticity of demand
answer
the percentage change in unit sales that result from a percentage change in price.
Elasticity- indicates that changes in price usually cause demand to stretch or retract like a rubber band.

= % change in quantity demand / % change in price
question
demand
answer
refers to customers' desire for a product
- how much are the customers willing to pay as the price of the product goes up or down?
question
elastic demand
answer
demand in which changes in price have large effects on the amount demanded
- on graph: more horizontal
question
inelastic demand
answer
demand in which changes in price have little or no effect on the amount demanded; price change causes little change in demand
- on graph: more vertical
question
cross-elasticity of demand
answer
when changes in the price of one product affect the demand for another item
question
variable costs
answer
the costs of production (raw and processed materials, parts and labor) that are tied to and vary, depending on the number of units produced
question
average fixed cost
answer
the fixed cost per unit produced
question
contribution per unit
answer
the difference between the price the firm charges for a product and the variable costs
question
break-even point formula
answer
in dollars = total fixed costs/(1-(variable cost per unit/price))
in units = total fixed costs/contribution per unit to fixed costs
question
markup
answer
an amount to the cost of a product to create the price at which a channel member will sell the product
question
gross margin
answer
the markup amount to the cost of a product to cover the FC of the retailer or wholesaler and leave an amount for a profit.
question
pricing environment
answer
firms consider external influences upon pricing decisions
- economy
- competition
- govt regulation
- consumer trends
- international environment
question
revenue
answer
R = price x units sold
question
pricing strategies
answer
ex. cost-based pricing is most common
question
Pricing strategy based on competition?
Pricing strategy based on customer needs?
answer
1) Price leadership strategy
2) Value or Every Day Low Pricing (EDLP)
question
skimming price (new product pricing tactics)
answer
start very high to recover cost to develop new product (flat screen tv)
question
penetration pricing (new product pricing tactics)
answer
start very low to build market share and discourage others from entering the market
question
trial pricing (new product pricing tactics)
answer
start low for short period of time then raise price to normal level (this works best when you tell consumers this will happen from the start
question
Pricing tactics: Discounting for Channel Members
answer
-trade or functional discounts
-quantity discounts
-cash discounts
-seasonal discounts
question
Internal reference prices
answer
a set price or price range consumers have in mind when evaluating a product's price
question
price-quality inferences
answer
when consumers use price as a cue to infer product quality
question
formula for value?
answer
V = Quality / Price

Value = what I get / what I give up
question
psychological issues in pricing
answer
-buyer' exceptions
-internal reference prices
-price-quality inferences
question
psychological pricing strategies
answer
-odd-even pricing
-price lining
-prestige pricing
question
legal and ethical issues in B2C pricing
answer
- Bait-and-switch
- loss-leader pricing
question
legal and ethical issues in B2B pricing
answer
- price discrimination
- price-fixing
- predatory pricing
question
bait-and-switch
answer
- first, advertise very low-priced item to lure customer to store (bait)
- then, arriving customers find product is out of stock and are offered more expensive item (switch)
question
loss-leader pricing
answer
-use very low prices to get customers into the store
- making up the "loss" through sale of other products
question
illegal price discrimination
answer
firms sell product to channel members at different prices in a way that "lessens competition"
question
price fixing
answer
two or more companies conspire to keep prices at a certain level
- horizontal vs. vertical price fixing
question
predatory pricing
answer
firm sets very low price for purpose of driving rival out of business
1 of 46
question
price
answer
assignment of value, or the amount the consumer must exchange to receive the offering or product.
question
Elements of price planning (6 steps)
answer
1. Set Pricing Obj. (profit, sales, market share...)
2. Estimate Demand (shifts in demand, price elasticity of demand)
3. Determine costs (variable costs, fixed costs, break-even analysis, markups & margins)
4. Examine the Pricing Environment (economy, competition, govt regulation, consumer trends)
5. Choose a Pricing Strategy (based on cost, demand, competition, customers' needs)
6. Develop Pricing Tactics (for individual, multiple products, distribution-based tactics...)
question
Q. Which of the following pricing tactics is used when price reductions are offered only during a certain time of the​ year?
answer
seasonal discounts
question
Q. Which of the following refers to an amount added to the cost of a product to create the price at which a channel member will sell the​ product?
answer
Markup
question
Q. Which of the following refer to the assignment of​ value, or the amount the consumer must exchange to receive the offering or​ product?
answer
Price
question
Q. Which of the following refers to the costs of production that vary depending on the number of units​ produced?
answer
variable cost
question
Q. Which of the following refers to a deceptive pricing tactic in which an advertised price special is used as bait to get customers into the store with the intention of selling them to a​ higher-priced item?
answer
bait-and-switch
question
Q. Which of the following refers to demand in which changes in price have large effects on the amount​ demanded?
answer
elastic demand
question
Q. Which of the following is an illegal pricing strategy in which a company sets a very low price for the purpose of driving competitors out of​ business?
answer
Predatory pricing
question
Q. Which of the following occurs when two or more companies conspire to keep prices at a certain​ level?
answer
price fixing
question
Q. Which of the following refers to the percentage of a​ market, defined in terms of either sales units or​ revenue, accounted for by a specific​ firm, product​ lines, or​ brands?
answer
Market share
question
5 major forms of Pricing Objectives
answer
-sales or mkt share
-profit
-competitive effect
-customer satisfaction
-image enhancement
question
4 Factors in Price Setting
answer
-costs
-demands
-revenue
-pricing environment
question
Demand curve for Normal vs. Prestige Products
answer
Normal - downward sloping; as prices go up, quantity demanded declines.
Prestige- half circle upward; as price increases, so does demand for the product
question
upward shift in demand curve
answer
means that at any given price, demand is greater than before the shift occurs. Customers will be willing to purchase the quantity at the given price.
question
Price elasticity of demand
answer
the percentage change in unit sales that result from a percentage change in price.
Elasticity- indicates that changes in price usually cause demand to stretch or retract like a rubber band.

= % change in quantity demand / % change in price
question
demand
answer
refers to customers' desire for a product
- how much are the customers willing to pay as the price of the product goes up or down?
question
elastic demand
answer
demand in which changes in price have large effects on the amount demanded
- on graph: more horizontal
question
inelastic demand
answer
demand in which changes in price have little or no effect on the amount demanded; price change causes little change in demand
- on graph: more vertical
question
cross-elasticity of demand
answer
when changes in the price of one product affect the demand for another item
question
variable costs
answer
the costs of production (raw and processed materials, parts and labor) that are tied to and vary, depending on the number of units produced
question
average fixed cost
answer
the fixed cost per unit produced
question
contribution per unit
answer
the difference between the price the firm charges for a product and the variable costs
question
break-even point formula
answer
in dollars = total fixed costs/(1-(variable cost per unit/price))
in units = total fixed costs/contribution per unit to fixed costs
question
markup
answer
an amount to the cost of a product to create the price at which a channel member will sell the product
question
gross margin
answer
the markup amount to the cost of a product to cover the FC of the retailer or wholesaler and leave an amount for a profit.
question
pricing environment
answer
firms consider external influences upon pricing decisions
- economy
- competition
- govt regulation
- consumer trends
- international environment
question
revenue
answer
R = price x units sold
question
pricing strategies
answer
ex. cost-based pricing is most common
question
Pricing strategy based on competition?
Pricing strategy based on customer needs?
answer
1) Price leadership strategy
2) Value or Every Day Low Pricing (EDLP)
question
skimming price (new product pricing tactics)
answer
start very high to recover cost to develop new product (flat screen tv)
question
penetration pricing (new product pricing tactics)
answer
start very low to build market share and discourage others from entering the market
question
trial pricing (new product pricing tactics)
answer
start low for short period of time then raise price to normal level (this works best when you tell consumers this will happen from the start
question
Pricing tactics: Discounting for Channel Members
answer
-trade or functional discounts
-quantity discounts
-cash discounts
-seasonal discounts
question
Internal reference prices
answer
a set price or price range consumers have in mind when evaluating a product's price
question
price-quality inferences
answer
when consumers use price as a cue to infer product quality
question
formula for value?
answer
V = Quality / Price

Value = what I get / what I give up
question
psychological issues in pricing
answer
-buyer' exceptions
-internal reference prices
-price-quality inferences
question
psychological pricing strategies
answer
-odd-even pricing
-price lining
-prestige pricing
question
legal and ethical issues in B2C pricing
answer
- Bait-and-switch
- loss-leader pricing
question
legal and ethical issues in B2B pricing
answer
- price discrimination
- price-fixing
- predatory pricing
question
bait-and-switch
answer
- first, advertise very low-priced item to lure customer to store (bait)
- then, arriving customers find product is out of stock and are offered more expensive item (switch)
question
loss-leader pricing
answer
-use very low prices to get customers into the store
- making up the "loss" through sale of other products
question
illegal price discrimination
answer
firms sell product to channel members at different prices in a way that "lessens competition"
question
price fixing
answer
two or more companies conspire to keep prices at a certain level
- horizontal vs. vertical price fixing
question
predatory pricing
answer
firm sets very low price for purpose of driving rival out of business
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