Ch. 12 - Pricing Products And Services

Front 1

Price

Back 1

Money or other considerations exchanged for the ownership or use of a good or service.

Front 2

Price Equation

Back 2

Final Price = List Price - Incentives and Allowances + Extra Fees

Front 3

Profit Equation

Back 3

Profit = Total Revenue - Total Cost.

Total Revenue = Unit Price x Quantity Sold

Front 4

Approaches for Selecting Price Level

Back 4

1. Demand-oriented
2. Cost-oriented
3. Profit-oriented
4. Competition-oriented

Hint 4

4

Front 5

D-O Approaches
1. Skimming

Back 5

Setting the highest initial price that customers really desiring the product are willing to pay. After this demand is satisfied, price is lowered to attract another, more price-sensitive segment.

Hint 5

Skimming layers of "cream"

Front 6

D-O Approaches
2. Penetration

Back 6

Setting a low initial price on a new product to appeal to mass market.

Hint 6

Opposite of Skimming

Front 7

D-O Approaches
3. Presitge

Back 7

Setting high price so that quality/status-conscious consumers will be attracted to the product.

Front 8

D-O Approaches
4. Odd-Even

Back 8

Setting prices a few dollars or cents under an even number to appeal psychologically to consumers. (i.e. $499 sounds less than $500.)

Front 9

D-O Approaches
5. Target

Back 9

Estimating the price that the ultimate consumer will pay and work backwards to account for retailer and wholesaler markups. Then adjusting product composition and features to acheive the target price to consumers.

Hint 9

Target Price + Markups = Wholesale Price, adjust product accordingly.

Front 10

D-O Approaches
6. Bundle

Back 10

Marketing two or more products in a single package price with the idea that customers will value the package more than the individual items. ie - Airlines that offer packages that include airfare, car rental, and lodging.

Front 11

D-O Approaches
7. Yield Management

Back 11

Charging different prices to maximize revenue for a set amount of capacity at any given times. (Varying prices to match supply and demand at a given time).

Front 12

Cost-Oriented Approaches
1. Standard Markup Pricing

Back 12

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

Front 13

C-O Approaches
2. Cost-Plus Pricing

Back 13

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

Front 14

Profit-Oriented Approaches
1. Target Profit

Back 14

Setting an annual target of a specific dollar volume of profit.

Price = {Profit + (Cost/unit x units sold) + overhead cost}/Units Sold

Front 15

P-O Approaches
2. Target Return-On-Sales

Back 15

Setting a price to achieve a profit that is a specified percentage of sales volume.

Front 16

P-O Approaches
3. Target Return-on-Investment

Back 16

Set prices to achieve a ROI target.

Front 17

Comptetition-Oriented Approaches
1. Customary Pricing

Back 17

Setting a price that is on par with all other similar products in the market.

Front 18

Comp.-O Approaches
2. Above-, At-, or Below-Market Pricing

Back 18

Using the market price (price customers are willing to pay) they determine whether to set a price above, at, or below that price.
Above - Luxury manufacturers (Rolex)
At - Mass-merchansise chains (Sears)
Below - Generic product manufacturers (America's Choice)

Front 19

Comp.-O Approaches
3. Loss-Leader Pricing

Back 19

Selling a product below its customary price to attract customers with hopes they will buy other products as well.

Front 20

Demand Curve

Back 20

Graph relating quantity sold and price, which shows how many units will be sold at a given price.

Front 21

Total Revenue

Back 21

TR=Unit Price (P) x Quantity Sold (Q)

TR=PxQ

Front 22

Break-even analysis

Back 22

Examines the relationship between total revenue and total cost to determine profitability at different leves of output. Provides the given quantity produced to achieve revenues equal to costs.

BEP(quantity) = Fixed Cost/(Unit price - Unit variable cost)

Hint 22

BP=FC/(UP-UVC)

Front 23

Pricing Objectives & Types

Back 23

Expectations that specify the role of price in an organization's marketing and strategic plans.
1. Profit
2. Sales Revenue
3. Market Share
4. Unit Volume
5. Survival
6. Social Resposibility

Hint 23

6 Types

Front 24

Pricing constraints & Types

Back 24

Factors that limit the range of price a firm may set.
1. Demand for product class (cars), product (sports cars), and brand (Bugatti Veyron).
2. Newness of Product (Stage in Product Life Cycle)
3. Cost of Producing and Marketing product
4. Competitors' prices
5. Legal and Ethical Considerations

Hint 24

5 types

Front 25

Legal and Ethical Considerations:
Practices Under Scrutiny

Back 25

1. Price fixing: A conspiracy among firms to set prices.
Horizontal - 2 or more firms collude to set prices
Veritcal - Manufacturers and retailers set agreements in which sellers are required to not sell products below a minimum retail price (aka Resale price maintenance).

2. Price discrimination: Charging different prices to differnt buyers for goods of like grade and quality.

3. Deceptive pricing: Price deals that mislead consumers.
Bait and Switch - cust's. lured into store by low price of specific product then encouraged to buy a higher priced item.

4. Predatory Pricing: Charging a very low price for a product with the intent of driving competitors out of business.

5. Discounts from fictitious "list price".

Hint 25

PF - h and v
PD
DP - b&s
PP
FD

Front 26

Steps in Setting a Final Price

Back 26

1. Select an Approximate Price Level
2. Set the List or Quoted Price
3. Make Special Adjustments to the List or Quoted Price. Three special adjustments are discounts, allowances, and geographical adjustments.

Hint 26

3 types

Front 27

One-Price policy (Step 2)

Back 27

setting one price for all buyers of a product or service.

Hint 27

Saturn: "No haggle, one price"

Front 28

Flexible-Price policy (Step 2)

Back 28

Setting different prices for products and services depending on individual buyers and purchase situation in light of demand, cost, and competitive factors.

Front 29

Discounts & Types (Step 3)

Back 29

Reductions from list price that a sller gives a buyer as a reward for some activity of the buyer that is favorable to the seller.
1. Quantity
2. Seasonal
3. Trade (functional)
4. Cash

Hint 29

4 Types

Front 30

Allowances & Types (Step 3)

Back 30

Reductions from list prices to buyers for performing some activity.
1. Trade-in allowances (car)
2. Promotional allowances

Hint 30

2 Types

Front 31

Geographical Adjustments & Methods (Step 3)

Back 31

Made by manufactures or even wholesalers to list prices to reflect the cost of transportation of the products from seller to buyer.
1. FOB (free on board) Origin pricing - Seller pays cost of transportation.
2. Uniform delivered pricing - Price quoted by the seller includes transportation costs. (Paid by buyer)

Hint 31

2 Methods

Front 32

Price Gouging Strategies

Back 32

What the market will tolerate

A) Cable TV - screw customer, can't do anything about it
B) Extended Service Contracts - cust. scare easily