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Price is that which is given up in an exchange to acquire a good or service.
The price charged to customers multiplied by the number of units sold
Revenue minus expenses.
Trends Influencing Price
- Flood of new products
- Increased availability of bargain-priced private
- and generic brands
- Price cutting as a strategy to maintain or
- regain market share
- Internet used for comparison shopping
Profit-Oriented Pricing Objectives
- Profit Maximization
- Satisfactory Profits
- Target Return on Investment
Setting prices so that total revenue is as large as possible relative to total costs.
Return on Investment
Net profit after taxes divided by total assets.
A company’s product sales as a percentage of total sales for that industry.
The quantity of a product that will be sold in the market at various prices for a specified period.
The quantity of a product that will be offered to the market by a supplier at various prices for a specific period.
The price at which demand and supply are equal.
Elasticity of Demand
Consumers’ responsiveness or sensitivity to changes in price.
Consumers buy more or less of a product when the price changes.
- An increase or decrease in price will not significantly
- affect demand.
An increase in sales exactly offsets a decrease in prices, and revenue is unchanged.
Factors that Affect Elasticity of Demand
- Availability of substitutes
- Price relative to purchasing power
- Product durability
- A product’s other uses
- Rate of inflation
Yield Management Systems
A technique for adjusting prices that uses complex mathematical software to profitably fill unused capacity
Methods Used to Set Prices
- Markup pricing
- Profit Maximization Pricing
- Break-Even Pricing
The cost of buying the product from the producer plus amounts for profit and for expenses not otherwise accounted for.
The practice of marking up prices by 100%, or doubling the cost.
A method of setting prices that occurs when marginal revenue equals marginal cost.
The extra revenue associated with selling an extra unit of output, or the change in total revenue with a one-unit change in output.
Other Determinants of Price
- Stages of the Product Life Cycle
- Distribution Strategy
- Promotion Strategy
- Perceived Quality
Selling against the brand
Stocking well-known branded items at high prices in order to sell store brands at discounted prices.
The Impact of the Internet
- Product selection
- Second opinions from expert sites
- Shopping bots
- Internet auctions
Charging a high price to help promote a high-quality image.
Dimensions of Quality
- 1.Ease of use
Status quo pricing
a ricing objective that maintatins existing prices or meets the competition's prices
a cost that varies with changes in the level of output
a cost that does not change as output is increased or decreased
Average Variable cost (AVC)
total variable costs divided by quantity of output
average total cost (ATC)
total cost divided by quantity of output
marginal cost (MC)
the change in total cost associated with a one-unit change in output
a method of determining what sales volume must be reached before total revenue equals total costs
a private electronic network that links a company with its suppliers and customers