Pricing and channels Midterm - Assignment Essays

question

D. Both A and B

answer

Lower prices are typically seen in the later stages of the product life cycle. Why is this?

A. Brands tend to be less differentiated

B. More discounts to protect market share

C. Buyers incomes are lower at this point

D. Both A and B

E. Both B and C

question

C. It assures consumers that they're getting fair value

answer

What is NOT one of the three roles of price in the marketing mix?

A. It helps to reinforce the brand's unique positioning

B. It directly leads to the company's revenue and profit

C. It assures consumers that they're getting their fair value

D. It allocates resources to where demand is greatest.

question

Value = Benefit/Price

answer

The value equation

question

Increases- value increases

Decreases - value decreases

answer

What happens if benefit increases/decreases?

question

Increases - value decreases

Decreases - value increases

answer

What happens if price increases/decreases?

question

higher

answer

Lower prices implies ______ sales volume

question

Lower

answer

Lower price implies _______ profit margin

question

Lower

answer

Lower price implies ______________ product quality

question

undifferentiated

answer

Lower price implies ___________ brand

question

weak

answer

Lower price implies ____________ brand equity

question

Lower

answer

Higher price implies _________ sales volume

question

Higher

answer

Higher price implies _________ profit margin

question

Differentiated

answer

Higher price implies _________ brand

question

Strong

answer

Higher price implies _________ brand equity

question

1. Delivers value by fulfilling customers' needs with an offering they'll want.

2. These offerings should be differentiated, which gives the business its competitive advantage.

3. Competitive advantage enables the business to generate profit and create further value.

answer

The point of every business?

question

Macro-economic perspective, micro-economic perspective, business perspective

answer

What are the three main roles of price?

question

Macro-economic perspective

answer

allocates resources to where they're valued most, i.e. demand

question

Micro-economic perspective

answer

a measure of utility that the product provides the consumer, i.e. value

question

Business perspective

answer

a critical marketing lever, impacting revenue, profit, brand positioning

question

Profit

Target return (ROI)

Sales volume

Market share

Survival

Social responsibility

answer

Pricing objectives

question

Highlights the target segment, frame of reference, point of difference, and reason to believe

answer

Purpose of positioning statement

question

True economic value, consumer perceived value, competition, and COGS

answer

The pricing thermometer includes

question

PV - Price

answer

Consumer's incentive to buy equation

question

Price - COGS

answer

Company's inventive to sell equation

question

Costs consumers and competition

answer

Pricing orientations

question

Unit price - unit cost

answer

Unit Profit =

question

Total revenue - total cost

answer

Total profit =

question

(Price x quantity) - (Fixed Cost + variable cost)

answer

Profit =

question

Price x quantity

answer

Revenue =

question

Fixed cost + variable cost

answer

Total cost =

question

Fixed costs

answer

stays constant regardless of units produced and sold

question

Variable cost

answer

Varies according to units produced and sold

question

Contribution margin

answer

The amount remaining from sales revenues after all variable expenses have been deducted, it must cover FC then left over becomes profit

question

Variable cost / quantity

answer

Unit variable cost

question

Price - Unit variable cost

answer

unit contribution margin

question

Revenue - variable cost

answer

Total contribution margin =

question

(Price - unit variable cost) / price

answer

Unit CM %=

question

(Revenue - variable cost) / revenue

answer

Total CM % =

question

Break-even point

answer

quantity at which Total revenue = total cost

question

loss, in the red

answer

Sales below BEP ->

question

profit, in the black

answer

Sales above BEP ->

question

fixed cost / (unit price - unit variable cost)

answer

BEPquantity

question

BEPquantity x Unit price

answer

BEPsales

question

Increases

answer

If fixed cost increase then BEq

question

Increases

answer

If variable cost increase then BEq

question

decreases

answer

If unit price increases, BEq

question

Marketing cost

answer

Advertising, public relations, trade shows

question

Fixed cost

answer

Is marketing cost a fixed or variable cost

question

Variable

answer

is commission a fixed or variable cost?

question

Fixed

answer

Is salary a fixed or variable cost?

question

Price and UVC might not remain constant

answer

Break-even analysis limitations:

question

Economies of scale

answer

the cost advantage experienced by a firm when it increases its level of output

question

Cost-Plus pricing

answer

price determined by adding a certain percentage to the cost of each unit

question

Cost x (1 + markup %)

answer

Cost-plus pricing price =

question

B2B companies, contractors, retailers, wholesalers, professional services

answer

Who uses cost-plus pricing

question

seller factors in a fair profit

answer

Why cost-plus pricing is used

question

Sales volume, turnover rate, perishability, ethics

answer

Factors affecting the size of grocery store markups

question

Markup

answer

% added to our cost to reach price

question

Margin

answer

% of our price that represents profit

question

(Price-cost)/cost

answer

Markup % =

question

(Price-cost/price

answer

Margin %=

question

Margin

answer

Largest _______ % shows the best return

question

Simple to do, easy to justify, ensure profit

answer

Advantages of cost-plus pricing

question

Passive, little incentive to control costs, can lead to death spiral

answer

Disadvantages

question

Identify tradeoffs between price level and sales volume and their impact on profit

answer

Why do financial analysis?

question

determine the initial unit CM

answer

First step of financial analysis

question

Calculate the BE sales change for the planned price change

answer

Second step of financial analysis

question

Determine profit implications of the actual sales change

answer

Third step of financial analysis

question

Break-even sales change

answer

the change in volume that ensures the same total profit at the new price as at the old price

question

Cash discount

answer

for cash, early or prompt payments

question

Volume discount

answer

for customers who buy in large quantities

question

Seasonal discount

answer

for products/services that are out of season

question

Advantage-purchase discount

answer

for buying ahead of time

question

Trade discount

answer

straight price reduction, from producers to their intermediaries, to boost sales

question

Trade allowance

answer

funds paid to gain intermediaries support for consumer promotions

question

Loss-leading pricing

answer

set price for minimal profit - or even a lost - to attract customers who might then buy additional products with higher margins

question

set prices so that they're different on a per-unit basis

answer

Non-linear pricing is

question

competitiveness, reward for loyalty, efficient use of resources, pursuit of social goals

answer

Objectives of non-linear pricing

question

Peak-load pricing

answer

the highest price is charged in periods when demand is greatest

question

shifts consumption to attain balance between supply and demand

answer

Object of peak-load pricing

question

Perfectly elastic

answer

where any very small change in price results in a very large change in the quantity demanded

question

pure commodities

answer

Products thats are perfectly elastic are mostly

question

Relatively elastic

answer

where small changes in price cause large changes in quantity demanded.

question

Unit elastic

answer

where any change in price is matched by an equal change in quantity

question

Relatively inelastic

answer

where large changes in price cause small changes in demand

question

Perfectly inelastic

answer

where the quantity demanded does not change when the price changes

question

Change in quantity demanded

answer

movement along the demand curve (up/down) caused by a change in our own price

question

Change in overall demand

answer

overall shift of the demand curve due to a change in consumer preference, complementary or substitute products, consumer income

question

Veblen goods

answer

upward-sloping demand curve, due to highly exclusive nature and appeal as status symbols

question

Price elasticity of demand

answer

refers to consumers responsiveness or sensitivity to changes in price

question

unitary demand

answer

if 25% change

question

elastic demand

answer

if >25% change

question

inelastic demand

answer

if <25% change

question

% change in quantity demanded / % change in price

answer

Elasticity =

question

Elastic

answer

E > 1

question

Unitary demand

answer

E = 1

question

Inelastic

answer

E < 1

question

Elastic

answer

is sophisticated, deliberative

bears most or all of the cost

is able to switch out easily

is not motivated by prestige

question

Unitary demand

answer

has little or no differentiation

is easy to compare

will perform as expected

is not mission control

question

Inelastic

answer

snack bars, beef

question

Price sensitivity is higher if buyer factors

answer

nature valley bars, iphone

question

Price sensitivity is higher if product factors

answer

wheat, gas

question

Examples of relatively elastic

answer

xcel energy

question

Examples of unit elastic

answer

reduce price elasticity of demand via strong positioning and brand equity:

question

Examples of relatively inelastic

answer

the idea that all consumers should pay the same price is almost always suboptimal for the business

question

Examples of perfectly inelastic

answer

Consumer value-based pricing pro

question

Differentiated, believable, relevant, emotional and not just for functional benefit

answer

Consumer value-based pricing con

question

Consumer value-based pricing

answer

Numerator of customer-perceived value

question

helps maximize company's profits

answer

Denominator of customer-perceived value

question

difficult to do; needs conjecture

answer

what benefits are included in total customer benefit

question

Total customer benefit

answer

what costs are included in total customer cost

question

Total customer cost

answer

What a fully informed and rational buyer should be willing to pay

question

product, services, personal, image

answer

Why the TEV-PV gap

question

monetary, time, energy, psychological

answer

the smaller the gap between TEV and PV,

question

TEV

answer

closing the TEV-PV gap

question

Not aware of all the benefits

Aware but skeptical of the claims

Aware and accept the claims, but don't see benefits as relevant

answer

High product price, low marketing expenditure

question

the more profit we can capture

answer

High product price, high marketing expenditure OR

low product price, low marketing expenditure

question

Compelling advertising, PR

Personal-selling activities

samples, demos, guarantees

user reviews, testimonials

answer

Low product price, high marketing expenditure

question

No unit sales

answer

Affect consumers different perfections of value

question

Feasible

answer

- value can be perceived differently by different individuals, depending on the benefit they seek

- consumers have other options for fulfilling their need

- price is often considered an indicator of a products value

question

No unit contribution

answer

- the benefit delivered by the features and attributes

- options that the buyer has and is aware of

- the extent to which the buyer sees price as a signal of the products value

question

Personal tastes, nature of use, intensity of use, category knowledge

answer

the method of setting a price by which a company calculates and tries to earn the differentiated worth of its product for a particular customer segment when compared to its competitor

question

Truths on pricing on perceived value

answer

determining value-based price

question

PV is a function of

answer

specific unit to which the price is applied

question

Value-based pricing

answer

policy, rule or program that consumer must follow to qualify for the price

question

1. focus on a single segment

2. understand the differentiated worth

3. compare with next best alternative

4. place $ amount on the differentiation

5. establish optimal pricing structure

answer

Single seller

Truly unique product

Entry or exit is largely blocked by the lone seller

No competition

question

Metrics

answer

Few sellers

Level of differentiation

Some price competition

question

Fences

answer

many sellers

competitors focus on differentiating themselves

Promotion tends to emphasize benefits over deals

question

Market structure: Pure monopoly

answer

dominant influence on price within particular industry

question

Market structure: Oligopoly

answer

- lack a meaningful point of difference

- face market entrants with lower costs

- need to increase sales volume to cover high fixed costs

- have excess production capacity

question

Market structure: monopolistic competition

answer

copycat product made by contract manufacturer

question

Price leader

answer

undefined

question

Companies most vulnerable to price wars:

answer

undefined

question

Private label

answer

undefined

1 of 134

question

D. Both A and B

answer

Lower prices are typically seen in the later stages of the product life cycle. Why is this?

A. Brands tend to be less differentiated

B. More discounts to protect market share

C. Buyers incomes are lower at this point

D. Both A and B

E. Both B and C

question

C. It assures consumers that they're getting fair value

answer

What is NOT one of the three roles of price in the marketing mix?

A. It helps to reinforce the brand's unique positioning

B. It directly leads to the company's revenue and profit

C. It assures consumers that they're getting their fair value

D. It allocates resources to where demand is greatest.

question

Value = Benefit/Price

answer

The value equation

question

Increases- value increases

Decreases - value decreases

answer

What happens if benefit increases/decreases?

question

Increases - value decreases

Decreases - value increases

answer

What happens if price increases/decreases?

question

higher

answer

Lower prices implies ______ sales volume

question

Lower

answer

Lower price implies _______ profit margin

question

Lower

answer

Lower price implies ______________ product quality

question

undifferentiated

answer

Lower price implies ___________ brand

question

weak

answer

Lower price implies ____________ brand equity

question

Lower

answer

Higher price implies _________ sales volume

question

Higher

answer

Higher price implies _________ profit margin

question

Differentiated

answer

Higher price implies _________ brand

question

Strong

answer

Higher price implies _________ brand equity

question

1. Delivers value by fulfilling customers' needs with an offering they'll want.

2. These offerings should be differentiated, which gives the business its competitive advantage.

3. Competitive advantage enables the business to generate profit and create further value.

answer

The point of every business?

question

Macro-economic perspective, micro-economic perspective, business perspective

answer

What are the three main roles of price?

question

Macro-economic perspective

answer

allocates resources to where they're valued most, i.e. demand

question

Micro-economic perspective

answer

a measure of utility that the product provides the consumer, i.e. value

question

Business perspective

answer

a critical marketing lever, impacting revenue, profit, brand positioning

question

Profit

Target return (ROI)

Sales volume

Market share

Survival

Social responsibility

answer

Pricing objectives

question

Highlights the target segment, frame of reference, point of difference, and reason to believe

answer

Purpose of positioning statement

question

True economic value, consumer perceived value, competition, and COGS

answer

The pricing thermometer includes

question

PV - Price

answer

Consumer's incentive to buy equation

question

Price - COGS

answer

Company's inventive to sell equation

question

Costs consumers and competition

answer

Pricing orientations

question

Unit price - unit cost

answer

Unit Profit =

question

Total revenue - total cost

answer

Total profit =

question

(Price x quantity) - (Fixed Cost + variable cost)

answer

Profit =

question

Price x quantity

answer

Revenue =

question

Fixed cost + variable cost

answer

Total cost =

question

Fixed costs

answer

stays constant regardless of units produced and sold

question

Variable cost

answer

Varies according to units produced and sold

question

Contribution margin

answer

The amount remaining from sales revenues after all variable expenses have been deducted, it must cover FC then left over becomes profit

question

Variable cost / quantity

answer

Unit variable cost

question

Price - Unit variable cost

answer

unit contribution margin

question

Revenue - variable cost

answer

Total contribution margin =

question

(Price - unit variable cost) / price

answer

Unit CM %=

question

(Revenue - variable cost) / revenue

answer

Total CM % =

question

Break-even point

answer

quantity at which Total revenue = total cost

question

loss, in the red

answer

Sales below BEP ->

question

profit, in the black

answer

Sales above BEP ->

question

fixed cost / (unit price - unit variable cost)

answer

BEPquantity

question

BEPquantity x Unit price

answer

BEPsales

question

Increases

answer

If fixed cost increase then BEq

question

Increases

answer

If variable cost increase then BEq

question

decreases

answer

If unit price increases, BEq

question

Marketing cost

answer

Advertising, public relations, trade shows

question

Fixed cost

answer

Is marketing cost a fixed or variable cost

question

Variable

answer

is commission a fixed or variable cost?

question

Fixed

answer

Is salary a fixed or variable cost?

question

Price and UVC might not remain constant

answer

Break-even analysis limitations:

question

Economies of scale

answer

the cost advantage experienced by a firm when it increases its level of output

question

Cost-Plus pricing

answer

price determined by adding a certain percentage to the cost of each unit

question

Cost x (1 + markup %)

answer

Cost-plus pricing price =

question

B2B companies, contractors, retailers, wholesalers, professional services

answer

Who uses cost-plus pricing

question

seller factors in a fair profit

answer

Why cost-plus pricing is used

question

Sales volume, turnover rate, perishability, ethics

answer

Factors affecting the size of grocery store markups

question

Markup

answer

% added to our cost to reach price

question

Margin

answer

% of our price that represents profit

question

(Price-cost)/cost

answer

Markup % =

question

(Price-cost/price

answer

Margin %=

question

Margin

answer

Largest _______ % shows the best return

question

Simple to do, easy to justify, ensure profit

answer

Advantages of cost-plus pricing

question

Passive, little incentive to control costs, can lead to death spiral

answer

Disadvantages

question

Identify tradeoffs between price level and sales volume and their impact on profit

answer

Why do financial analysis?

question

determine the initial unit CM

answer

First step of financial analysis

question

Calculate the BE sales change for the planned price change

answer

Second step of financial analysis

question

Determine profit implications of the actual sales change

answer

Third step of financial analysis

question

Break-even sales change

answer

the change in volume that ensures the same total profit at the new price as at the old price

question

Cash discount

answer

for cash, early or prompt payments

question

Volume discount

answer

for customers who buy in large quantities

question

Seasonal discount

answer

for products/services that are out of season

question

Advantage-purchase discount

answer

for buying ahead of time

question

Trade discount

answer

straight price reduction, from producers to their intermediaries, to boost sales

question

Trade allowance

answer

funds paid to gain intermediaries support for consumer promotions

question

Loss-leading pricing

answer

set price for minimal profit - or even a lost - to attract customers who might then buy additional products with higher margins

question

set prices so that they're different on a per-unit basis

answer

Non-linear pricing is

question

competitiveness, reward for loyalty, efficient use of resources, pursuit of social goals

answer

Objectives of non-linear pricing

question

Peak-load pricing

answer

the highest price is charged in periods when demand is greatest

question

shifts consumption to attain balance between supply and demand

answer

Object of peak-load pricing

question

Perfectly elastic

answer

where any very small change in price results in a very large change in the quantity demanded

question

pure commodities

answer

Products thats are perfectly elastic are mostly

question

Relatively elastic

answer

where small changes in price cause large changes in quantity demanded.

question

Unit elastic

answer

where any change in price is matched by an equal change in quantity

question

Relatively inelastic

answer

where large changes in price cause small changes in demand

question

Perfectly inelastic

answer

where the quantity demanded does not change when the price changes

question

Change in quantity demanded

answer

movement along the demand curve (up/down) caused by a change in our own price

question

Change in overall demand

answer

overall shift of the demand curve due to a change in consumer preference, complementary or substitute products, consumer income

question

Veblen goods

answer

upward-sloping demand curve, due to highly exclusive nature and appeal as status symbols

question

Price elasticity of demand

answer

refers to consumers responsiveness or sensitivity to changes in price

question

unitary demand

answer

if 25% change

question

elastic demand

answer

if >25% change

question

inelastic demand

answer

if <25% change

question

% change in quantity demanded / % change in price

answer

Elasticity =

question

Elastic

answer

E > 1

question

Unitary demand

answer

E = 1

question

Inelastic

answer

E < 1

question

Elastic

answer

is sophisticated, deliberative

bears most or all of the cost

is able to switch out easily

is not motivated by prestige

question

Unitary demand

answer

has little or no differentiation

is easy to compare

will perform as expected

is not mission control

question

Inelastic

answer

snack bars, beef

question

Price sensitivity is higher if buyer factors

answer

nature valley bars, iphone

question

Price sensitivity is higher if product factors

answer

wheat, gas

question

Examples of relatively elastic

answer

xcel energy

question

Examples of unit elastic

answer

reduce price elasticity of demand via strong positioning and brand equity:

question

Examples of relatively inelastic

answer

the idea that all consumers should pay the same price is almost always suboptimal for the business

question

Examples of perfectly inelastic

answer

Consumer value-based pricing pro

question

Differentiated, believable, relevant, emotional and not just for functional benefit

answer

Consumer value-based pricing con

question

Consumer value-based pricing

answer

Numerator of customer-perceived value

question

helps maximize company's profits

answer

Denominator of customer-perceived value

question

difficult to do; needs conjecture

answer

what benefits are included in total customer benefit

question

Total customer benefit

answer

what costs are included in total customer cost

question

Total customer cost

answer

What a fully informed and rational buyer should be willing to pay

question

product, services, personal, image

answer

Why the TEV-PV gap

question

monetary, time, energy, psychological

answer

the smaller the gap between TEV and PV,

question

TEV

answer

closing the TEV-PV gap

question

Not aware of all the benefits

Aware but skeptical of the claims

Aware and accept the claims, but don't see benefits as relevant

answer

High product price, low marketing expenditure

question

the more profit we can capture

answer

High product price, high marketing expenditure OR

low product price, low marketing expenditure

question

Compelling advertising, PR

Personal-selling activities

samples, demos, guarantees

user reviews, testimonials

answer

Low product price, high marketing expenditure

question

No unit sales

answer

Affect consumers different perfections of value

question

Feasible

answer

- value can be perceived differently by different individuals, depending on the benefit they seek

- consumers have other options for fulfilling their need

- price is often considered an indicator of a products value

question

No unit contribution

answer

- the benefit delivered by the features and attributes

- options that the buyer has and is aware of

- the extent to which the buyer sees price as a signal of the products value

question

Personal tastes, nature of use, intensity of use, category knowledge

answer

the method of setting a price by which a company calculates and tries to earn the differentiated worth of its product for a particular customer segment when compared to its competitor

question

Truths on pricing on perceived value

answer

determining value-based price

question

PV is a function of

answer

specific unit to which the price is applied

question

Value-based pricing

answer

policy, rule or program that consumer must follow to qualify for the price

question

1. focus on a single segment

2. understand the differentiated worth

3. compare with next best alternative

4. place $ amount on the differentiation

5. establish optimal pricing structure

answer

Single seller

Truly unique product

Entry or exit is largely blocked by the lone seller

No competition

question

Metrics

answer

Few sellers

Level of differentiation

Some price competition

question

Fences

answer

many sellers

competitors focus on differentiating themselves

Promotion tends to emphasize benefits over deals

question

Market structure: Pure monopoly

answer

dominant influence on price within particular industry

question

Market structure: Oligopoly

answer

- lack a meaningful point of difference

- face market entrants with lower costs

- need to increase sales volume to cover high fixed costs

- have excess production capacity

question

Market structure: monopolistic competition

answer

copycat product made by contract manufacturer

question

Price leader

answer

undefined

question

Companies most vulnerable to price wars:

answer

undefined

question

Private label

answer

undefined

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