MAR 3023 Exam 4 Massiah |55 Questions and Answers
Price - -The overall sacrifice a consumer is willing to make (money, time, energy) to
acquire a specific product or service. Price ranked as one of the most important factors in
purchase decisions. Changes the quickest; generates revenue.
-The 5 C's of Pricing - -Company objectives, customers, costs, competition, channel
members
-Profit-oriented - -Company objective focusing on maximizing profits, target profit pricing,
or target return pricing.
Ex: institute a companywide policy that all products must provide for at least an 18% profit
margin to reach a particular profit goal for the firm.
-Sales-oriented - -A company objective based on the belief that increasing sales will help
the firm more than will increasing profits.
Ex: set prices very low to generate new sales and take sales away from competitors, even if
profits suffer.
-Competitor-oriented - -A company objective based on the premise that the firm should
measure itself primarily against its competition.
Ex: to discourage more competitors from entering the market, set prices very low.
-Customer-oriented - -A company objective based on the premise that the firm should
measure itself primarily according to whether it meets its customers' needs.
Ex: target a market segment of consumers who highly value a particular product benefit
and set prices relatively high (referred to as premium pricing)
-Demand curve - -Shows how many units of a product or service consumers will demand
during a specific period of time at different prices
-Price elasticity of demand - --Measures how changes in price affect the quantity of the
product demanded
-Formula: % change in quantity demand/% change in price.
-% Change in price = New-old/old
-Income effect - -The change in the quantity of a product demanded by consumers due to
changes in their incomes
-Substitution effect - -Ability to substitute other products for the focal brand
-Cross-price elasticity - -The percentage change in demand for product A that occurs in
response to a percentage change in price of product B.
Ex: An increase in the price of milk results in a decrease in demand for cereal.
, -Break-even analysis - -Technique used to examine the relationships among cost, price,
revenue, and profit over different levels of production and sales to determine the break-
even point.
-Break even point (units) - --Fixed costs / Contribution per unit.
-Contribution per unit= Price-VC per unit.
The point at which the number of units sold generates just enough revenue to equal the
total costs; at this point, profits are zero
-Competition - -Impact on pricing strategies; focus on its effects as well as how
competitors react to certain pricing strategies
-Channel members - -Ex: Manufacturers, wholesalers, and retailers
-Larger firms are less likely to use supply chain management.
-Can gain more control, be more efficient, and save money.
-Cost-based methods - -Determines the final price to charge by starting with the cost,
without recognizing the role that consumers or competitors' prices play in the marketplace
-Competitor-based pricing - -Set prices to signal information of how products compare
with competitors. Often used to gain market share or exploit a cost advantage they have
achieved.
Ex: Premium pricing
-Value-based methods - -Setting prices that focus on the overall value of the product
offering as perceived by the consumer.
Ex: Cost of ownership method
-Everyday low pricing - --Companies stress the continuity of their retail prices at a level
somewhere between the regular, non sale price and the deep-discount sale prices their
competitors may offer
-Saves search costs of finding lowest overall pricing.
-High low pricing - --Relies on the promotion of sales, during which prices are temporarily
reduced to encourage purchases.
-Provides the thrill of the chase for the lowest price.
-Price skimming - -Selling a new product or service at a high price that innovators and
early adopters are willing to pay in order to obtain it
-Market penetration pricing - -Strategy in which the initial price is set relatively low with
the objective of building sales, market share, and profits quickly and to defer competition
from entering the market
-Pricing tactics - -Short-term methods used to focus on the 5 C's (company objectives,
costs, customers, competition and channel members)
Price - -The overall sacrifice a consumer is willing to make (money, time, energy) to
acquire a specific product or service. Price ranked as one of the most important factors in
purchase decisions. Changes the quickest; generates revenue.
-The 5 C's of Pricing - -Company objectives, customers, costs, competition, channel
members
-Profit-oriented - -Company objective focusing on maximizing profits, target profit pricing,
or target return pricing.
Ex: institute a companywide policy that all products must provide for at least an 18% profit
margin to reach a particular profit goal for the firm.
-Sales-oriented - -A company objective based on the belief that increasing sales will help
the firm more than will increasing profits.
Ex: set prices very low to generate new sales and take sales away from competitors, even if
profits suffer.
-Competitor-oriented - -A company objective based on the premise that the firm should
measure itself primarily against its competition.
Ex: to discourage more competitors from entering the market, set prices very low.
-Customer-oriented - -A company objective based on the premise that the firm should
measure itself primarily according to whether it meets its customers' needs.
Ex: target a market segment of consumers who highly value a particular product benefit
and set prices relatively high (referred to as premium pricing)
-Demand curve - -Shows how many units of a product or service consumers will demand
during a specific period of time at different prices
-Price elasticity of demand - --Measures how changes in price affect the quantity of the
product demanded
-Formula: % change in quantity demand/% change in price.
-% Change in price = New-old/old
-Income effect - -The change in the quantity of a product demanded by consumers due to
changes in their incomes
-Substitution effect - -Ability to substitute other products for the focal brand
-Cross-price elasticity - -The percentage change in demand for product A that occurs in
response to a percentage change in price of product B.
Ex: An increase in the price of milk results in a decrease in demand for cereal.
, -Break-even analysis - -Technique used to examine the relationships among cost, price,
revenue, and profit over different levels of production and sales to determine the break-
even point.
-Break even point (units) - --Fixed costs / Contribution per unit.
-Contribution per unit= Price-VC per unit.
The point at which the number of units sold generates just enough revenue to equal the
total costs; at this point, profits are zero
-Competition - -Impact on pricing strategies; focus on its effects as well as how
competitors react to certain pricing strategies
-Channel members - -Ex: Manufacturers, wholesalers, and retailers
-Larger firms are less likely to use supply chain management.
-Can gain more control, be more efficient, and save money.
-Cost-based methods - -Determines the final price to charge by starting with the cost,
without recognizing the role that consumers or competitors' prices play in the marketplace
-Competitor-based pricing - -Set prices to signal information of how products compare
with competitors. Often used to gain market share or exploit a cost advantage they have
achieved.
Ex: Premium pricing
-Value-based methods - -Setting prices that focus on the overall value of the product
offering as perceived by the consumer.
Ex: Cost of ownership method
-Everyday low pricing - --Companies stress the continuity of their retail prices at a level
somewhere between the regular, non sale price and the deep-discount sale prices their
competitors may offer
-Saves search costs of finding lowest overall pricing.
-High low pricing - --Relies on the promotion of sales, during which prices are temporarily
reduced to encourage purchases.
-Provides the thrill of the chase for the lowest price.
-Price skimming - -Selling a new product or service at a high price that innovators and
early adopters are willing to pay in order to obtain it
-Market penetration pricing - -Strategy in which the initial price is set relatively low with
the objective of building sales, market share, and profits quickly and to defer competition
from entering the market
-Pricing tactics - -Short-term methods used to focus on the 5 C's (company objectives,
costs, customers, competition and channel members)
