mkt chapter 5

• Price


  That which is given up in an exchange to acquire a good or service
• Price

  • Plays two roles in the evaluation of product alternatives:
  • The Sacrifice Effect of Price
  • The Information Effect of Price
• Sacrifice Effect of Price

  Price is "that which is given up", which means what is sacrificed to get a good or service. It may also be time lost while waiting to acquire the good or service.
• Information Effect of Price

  We infer quality information from price. Higher quality equals higher price.
• Importance of Price to Marketing Managers

  • Prices are the key to revenues, which in turn are the key to profits for an organization.
  • Revenue is the price charged to customers multiplied by the number of units sold.
  • Managers usually strive to charge a price that will earn a fair profit.
• To earn a profit, managers must choose a price that is not too high or too low, a price that equals the perceived value to target consumers.
• Markup Pricing


  The most popular method used by wholesalers and retailers to establish a selling price, does not directly analyze the costs of production. Instead, markup pricing uses the cost of buying the product from the producer, plus amounts for profit and for expenses not otherwise accounted for. The total determines the selling price.
• Keystoning


  Many small retailers mark up merchandise 100 percent over cost (double the cost)
• Profit Maximization Pricing

  Profit maximization occurs when marginal revenue equals marginal cost.<|>Marginal cost is the change in total costs associated with a one-unit change in output.<|>Marginal revenue is the extra revenue associated with selling an extra unit of output.
• As long as the revenue of the last unit produced and sold is greater than the cost of the last unit produced and sold, the firm should continue manufacturing and selling the product.
• Break-Even Pricing

  Break-even analysis determines what sales volume must be reached before the company breaks even (total costs equal total revenue) and no profits are earned.<|>The advantage of break-even analysis is that it provides a quick estimate of how much the firm must sell to break even and how much profit can be earned if a higher sales volume is obtained.
• Price Skimming


  A pricing policy whereby a firm charges a high introductory price, often coupled with heavy promotion.
• Penetration Pricing


  A pricing policy whereby a firm charges a relatively low price for a product initially as a way to reach the mass market.
• Status Quo Pricing

  Also known as meeting the competition or going rate pricing. It means charging a price identical to or very close to the competition's price.