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32 Cards in this Set
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- Back
- 3rd side (hint)
Price
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Money or other considerations exchanged for the ownership or use of a good or service.
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Price Equation
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Final Price = List Price - Incentives and Allowances + Extra Fees
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Profit Equation
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Profit = Total Revenue - Total Cost.
Total Revenue = Unit Price x Quantity Sold |
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Approaches for Selecting Price Level
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1. Demand-oriented
2. Cost-oriented 3. Profit-oriented 4. Competition-oriented |
4
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D-O Approaches
1. Skimming |
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.
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Skimming layers of "cream"
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D-O Approaches
2. Penetration |
Setting a low initial price on a new product to appeal to mass market.
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Opposite of Skimming
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D-O Approaches
3. Presitge |
Setting high price so that quality/status-conscious consumers will be attracted to the product.
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D-O Approaches
4. Odd-Even |
Setting prices a few dollars or cents under an even number to appeal psychologically to consumers. (i.e. $499 sounds less than $500.)
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D-O Approaches
5. Target |
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.
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Target Price + Markups = Wholesale Price, adjust product accordingly.
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D-O Approaches
6. Bundle |
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.
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D-O Approaches
7. Yield Management |
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).
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Cost-Oriented Approaches
1. Standard Markup Pricing |
Adding a fixed percentage to the cost of all items in a specific product class.
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C-O Approaches
2. 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.
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Profit-Oriented Approaches
1. Target Profit |
Setting an annual target of a specific dollar volume of profit.
Price = {Profit + (Cost/unit x units sold) + overhead cost}/Units Sold |
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P-O Approaches
2. Target Return-On-Sales |
Setting a price to achieve a profit that is a specified percentage of sales volume.
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P-O Approaches
3. Target Return-on-Investment |
Set prices to achieve a ROI target.
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Comptetition-Oriented Approaches
1. Customary Pricing |
Setting a price that is on par with all other similar products in the market.
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Comp.-O Approaches
2. Above-, At-, or Below-Market Pricing |
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) |
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Comp.-O Approaches
3. Loss-Leader Pricing |
Selling a product below its customary price to attract customers with hopes they will buy other products as well.
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Demand Curve
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Graph relating quantity sold and price, which shows how many units will be sold at a given price.
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Total Revenue
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TR=Unit Price (P) x Quantity Sold (Q)
TR=PxQ |
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Break-even analysis
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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) |
BP=FC/(UP-UVC)
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Pricing Objectives & Types
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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 |
6 Types
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Pricing constraints & Types
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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 |
5 types
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Legal and Ethical Considerations:
Practices Under Scrutiny |
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". |
PF - h and v
PD DP - b&s PP FD |
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Steps in Setting a Final Price
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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. |
3 types
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One-Price policy (Step 2)
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setting one price for all buyers of a product or service.
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Saturn: "No haggle, one price"
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Flexible-Price policy (Step 2)
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Setting different prices for products and services depending on individual buyers and purchase situation in light of demand, cost, and competitive factors.
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Discounts & Types (Step 3)
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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 |
4 Types
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Allowances & Types (Step 3)
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Reductions from list prices to buyers for performing some activity.
1. Trade-in allowances (car) 2. Promotional allowances |
2 Types
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Geographical Adjustments & Methods (Step 3)
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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) |
2 Methods
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Price Gouging Strategies
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What the market will tolerate
A) Cable TV - screw customer, can't do anything about it B) Extended Service Contracts - cust. scare easily |
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