Final exam study guide.docx - Chapter 14 Notes(Price Based...

Chapter 14 Notes (Price Based)
 Price is the only element of the marketing mix that does not generate costs, but instead generates revenue
 5 C’s of pricing: Competition, Costs, Company objectives, Customers, and Channel Members
 Firm’s Implement a profit orientation specifically by focusing on target profit pricing, maximizing profits, or target
return pricing.
o To meet this targeted profit objective, firms use price to stimulate a certain level of sales at a certain profit
per unit.
o Maximizing profits theory: if a firm can accurately specify a mathematical model that captures all the factors
required to explain and predict sales and profits, it should be able to identify the price at which its profits
are maximized.
o Target return pricing and employ pricing strategies designed to produce a specific return on their
investment, usually expressed as a percentage of sales.
 Premium pricing means the firm deliberately prices a product above the prices set for competing products to capture
those customers who always shop for the best or for whom price does not matter
 Price Elasticity of Demand= % change in quantity demanded / % change in price
 A product or service is price sensitive (or elastic) when the price elasticity is less than − 1, that is, when a 1 percent
decrease in price produces more than a 1 percent increase in the quantity sold
 Consumers are generally more sensitive to price increases than to price decreases
 The greater the availability of substitute products, the higher the price elasticity of demand for any given product will
be
 Monopolistic competition occurs when there are many firms competing for customers in a given market but their
products are differentiated
 With pure competition, there is a large number of sellers of standardized products or commodities that consumers
perceive as substitutable
 A gray market employs irregular but not necessarily illegal methods; generally, it legally circumvents authorized
channels of distribution to sell goods at prices lower than those intended by the manufacturer
 With an everyday low pricing (EDLP) strategy, 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
 A high/low pricing strategy, which relies on the promotion of sales, during which prices are temporarily reduced to
encourage purchases
 A reference price, which is the price against which buyers compare the actual selling price of the product and that
facilitates their evaluation process
 Firms using a market penetration strategy expect the unit cost to drop significantly as the accumulated volume sold
increases, an effect known as the experience curve effect
 Known as price skimming, appeals to these segments of consumers who are willing to pay the premium price to have
the innovation first
