CSUF MKTG 351 CHAPTER 21| 38 QUESTIONS AND ANSWERS|GUARANTEED SUCCESS

How do you set a price? -establish pricing goals -estimate demand, costs, and profits -choose a price strategy to help determine a base price -fine tune the base price w/pricing tactics Define price strategy. the initial price and gives direction for price movements over the product's life cycle Define price skimming. firm charging a high introductory price, w/heavy promotion; later decrease price (above the market) When does price skimming best function? -when there's a strong demand for product Define penetration pricing. charging a relatively low price for a product when it is first rolled out as a way to reach the mass market (below the market) What is an advantage of penetration pricing? -discourages or blocks competition from entering the marker What is a disadvantage of penetration pricing? -gearing up for mass production to sell a large volume at a low price Define status quo pricing. charging product price similar to that of the competition (at the market) Define unfair trade practice acts. laws prohibiting wholesalers and retailers from selling below cost Define price fixing. an agreement between 2+ firms on the price they will charge for a product Describe the Robinson-Patman Act of 1936. this act prohibits any firm from selling 2+ different buyers w/a reasonably short time, commodities of like grade and quality at different prices where the result would be to lessen competition Define predatory pricing. practice of charging low prices for a product w/the intent of driving competitors out of business What factors must be considered to violate the Robinson-Patman Act of 1936? -price discrimination must take place -transaction occurring w/in interstate commerce -product sold must be commodity or other good -products must be of grade and quality -significant competitive injury What 3 defenses could be used for a seller charged w/price discrimination? -cost -market conditions -competition Define base price. general price level at which company expects to sell good/service What are some tactics for fine-tuning the base price? -discounts -geographic pricing -other pricing strategies What are some forms of discounts? -quantity discounts -cash discounts -functional discounts seasonal discounts -promotional allowances -rebates -zero percent financing Define quantity discount. price reduction offered to buyers buying in multiple units or above a specified dollar amount Define cumulative quantity discount. deduction from a list price that applies to the buyer's total purchases made during a specific period Define noncumulative quantity discount. deduction from a list price that applies to a single purchase Define cash discounts. a price reduction offered to a consumer, industrial user, or a marketing intermediary in return for prompt payment of a bill Define functional discounts. compensation, usually a percentage discount from the base price Define promotional allowance or trade allowance. a payment to a dealer for promoting the manufacturer's products Define value based pricing. a pricing strategy that has grown out of the quality movement; based on consumer's perception Why do managers price too low? -managers are attempting to buy market share -justified decision making What tactics can be used to moderate the impact of freight costs? -FOB origin pricing -uniform delivered pricing -zone pricing -freight absorption pricing -basing-point pricing Define FOB origin pricing. price tactic that requires the buyer to absorb the freight costs from the shipping point ("free on board") Define uniform delivered pricing. price tactic where the seller pays the actual freight charges and bills every purchaser an identical, flat freight charge ("postage stamp") Define zone pricing. price tactic that allows seller to modify a uniform delivery price by dividing geographical areas into segments or zones and charges a flat freight rate to all customers in a given zone Define freight absorption pricing. price tactic in which the seller pays all or part of the actual freight charges and does not pass them on the buyer