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15 Cards in this Set

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Price
exchange of value for a good or service
Robinson-Patman Act (1936)
Federal legislation prohibiting price discrimination that is not based on a cost differential; also prohibits selling at unreasonable low prices to eliminate competition
Unfair-trade laws (1930s)
state laws requiring sellers to maintain minimum prices for comparable merchandise. Intended to protect small specialty shops from loss-leader pricing but have become less frequently enforced in recent years
Fair trade laws (1931)
Statutes enacted in most states that once permitted manufacturers to stipulate a minimum retail price for their product. Represented one legal barrier to competition that was removed in the face of growing price competition
Consumer Goods Pricing Act
banned interstate use of fair-trade laws
4 major categories of pricing objectives: profitability objectives (including profit maximization and target returns), volume objectives (sales maximization and market share), meeting competitive objectives, and prestige objectives
Profit maximization:
: point at which the additional revenue gained by increasing the price of a product equals the increase in total costs.
Target-return objectives
short-run or long-run pricing objectives of achieving a specified return on either sales or investment.
Profit Impact of Marketing Strategies project (PIMS)
research that discovered a strong positive relationship between a firm’s market share and product quality and its ROI
Value pricing
pricing strategy emphasizing benefits derived from a product in comparison to the price and quality levels of competing offerings.
Pricing objectives of NPO’s:
1) Profit maximization; example: a $1,000-a-plate political fundraiser
2) Cost recovery: often dictated by tradition, competition or public opinion
3) Market incentives: example: using the bus system reduces traffic and encourages retail sales
4) Market suppression: discouraging consumption of alcohol or tobacco
Customary prices
traditional prices that customers expect to pay for certain goods and services
3 problems of the price theory in actual practice
A) Many firms do not attempt to maximize profits, a basic assumption of the price theory
B) It is difficult to accurately estimate cost curves
C) Inadequate training of managers and poor communication between economists and managers make it difficult to apply price theory in real world
Cost-plus pricing
most popular method, uses a base-cost figure per unit and adds a markup to cover unassigned costs and to provide profit. Example, local shop may add a 45% markup to the invoice price charged by the supplier
Full-cost pricing
uses all relevant variable costs in setting a product’s price. Allocates those fixed costs that cannot be directly attributed to the production of a specific item being priced.
Incremental-cost pricing
attempts to use only those costs directly attributed to a specific output in setting prices to overcome arbitrary allocation of fixed expenses.
Break-even analysis
Pricing technique used to determine the number of products that must be sold at a specified price to generate enough revenue to cover total cost