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Chapter 9 & 10 - Pricing and Distrubution
Test #3
119
Marketing
Undergraduate 4
11/09/2014

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Term
Three major pricing strategies
Definition

value-based pricing

cost-based pricing

competition-based pricing

Term
price
Definition

the sum of all the values that a customer

 

the amount of money charged for ap roduct or service; the sume of the values that customers exchange for the benefits of having or using the product or service  

Term
customer value-based pricing
Definition
setting price based on buyers perceptions of value rather than on seller's cost
Term
good-value pricing
Definition
offering the right combination of quality and good service at a fair price
Term
value-added pricing
Definition
attaching value-added features and services to differentiate a company's offers whie charging higher prices
Term
cost-based pricing
Definition
setting prices based on the costs for producing, distributing, and selling the product plus a fair rate of return for effort and risk
Term
fixed cost (overhead)
Definition
costs that do not vary with production or sales level
Term
variable costs
Definition
costs that vary directly with the level of production
Term
total costs
Definition
the sum of the fixed and variable costs for any given level of production
Term
cost-plus pricing (markup pricing)
Definition
adding a standard markup to the cost of the product
Term
break-even pricing (target return pricing)
Definition
setting price to break even on the costs of making and marketing a product, or setting price to make a target return
Term
competition-based pricing
Definition
setting prices based on competitors' strategies, prices, costs, and market offerings
Term
target costing
Definition
pricing that starts with an ideal selling price and then targets costs that will ensure that the price is met
Term
demand curve
Definition
a curve that shows the number of units the market will buy in a given time period, at different prices that might be charged
Term
price elasticity
Definition
a measure of the sensitivity of demand to changes in price
Term
market-skimming pricing (or price skimming)
Definition
setting a high price for a new product to skim maximum revenues layer by layer forom segments willing to pay the high price; the company makes fewer byt more profitable sales
Term
market-penetration pricing
Definition
setting a low price for a new product to attract a large number of buyers and a large market share
Term
product line pricing
Definition
setting the price steps between various products in a product line based on cost differences between the products, customer evaluations of different features, and competitors' prices
Term
optional product pricing
Definition
the pricing of optional or accessory products along with a main product
Term
captive product pricing
Definition
setting a price for products that must be used along with a main product such as blades for razor and games for a videogame console
Term
by-product pricing
Definition
setting a price for by-products to make the main product's price more competitive
Term
product bundle pricing
Definition
combining several products and offering the bundle at a reduced price
Term
discount
Definition
a straight reduction in price on purchases made during a stated period of time or in larger quantities
Term
allowance
Definition
a reduction from the list price for buyer actions such as trade-ins or pomotional sales support
Term
segmented pricing
Definition
selling a product or service at two or more prices, where the difference in prices is not based on differences in costs
Term
psychological pricing
Definition
pricing that considers the psychology of prices, not simply the economics, the price says something about the products
Term
reference prices
Definition
prices that buyers carry in their minds and refer to when they look at a given product
Term
promotional pricing
Definition
temporarily pricing products below the list price, and sometimes even below cost, to increase short-run sales
Term
dynamic pricing
Definition
adjusting prices continually to meet the characteristics and needs of individual customers and situations
Term
good pricing captures....
Definition
the value that a product or service creates for customers and setting a price that captures that value
Term
customer perceptions of the products value set the....
Definition
price ceiling
Term
company and product costs set the....
Definition
price floor
Term
cost-based pricing is often....
Definition
product driven
Term
value-based pricing assess...
Definition
customer needs and value perceptions and then sets target price to match targeted value
Term
internal factors that influence pricing decisions (4)
Definition
1. overall marketing strategy
2. objectives
3. marketing mix
4. organizational considerations (management, size of company, etc.)
Term
pricing objectives (5)
Definition
1. customer retention
2. building profitable customer relationships
3. preventing competition
4. supporting resellers and gaining their support
5. avoiding government intervention
Term
price decisions must be coordinated with: (3)
Definition
1. product design
2. distribution
3. promotion decisions
Term
who decides who is responsible for setting price?
Definition
management
Term
external pricing considerations (2)
Definition
1. the nature of the market and demand
2. environmental factors (economy, reseller needs, government)
3.
Term
demand curve relationship
Definition
price-demand relationship
Term
price elasticity
Definition
consumer sensitivity to prices
Term
major strategies for pricing new products (2)
Definition
1. market-skimming pricing - initially setting high prices to skim the maximum amount of revenue from various segments of the market
2. market - penetrating pricing - setting a low initial price to penetrate the market deeply and win a large market share
Term
pricing structure
Definition
pricing structure is designed by a company to cover all products

changes over time and adjust it to account for different customers and situations

usually changes as a product passes through its life cycle
Term
when the product is part of a product mix, the firm searches for a set of prices that will...
Definition
maximize profits form the total mix
Term
product line pricing
Definition
the company decides on price steps for the entire set of products it offers
Term
optional products
Definition
optional or accessory products included with the main product
Term
captive products
Definition
products that are required for use of the main product
Term
by-products
Definition
waste or residual products produced when making the main product
Term
product bundles
Definition
combinations of products at a reduced price
Term
price adjustment strategies are used to...
Definition
account for differences in consumer segments and isutions
Term
discount and allowance pricing
Definition
the company establishes cash, quantity, functional, or seasonal discounts, or varying types of allowances
Term
segmented pricing
Definition
company sells a product at two or more prices to acommodate different customers, product forms, locations, or times
Term
psychological pricing
Definition
better communicate a product's intended position
Term
promotional pricing
Definition
a company offers discounts or temporarily sells a product below list price as a special event, sometimes even selling blow cost as a loss leader
Term
geographical pricing
Definition
the company decides how to price to near or distant customers
Term
international pricing
Definition
company adjusts its price to meet different conditions and expectations in different world markets
Term
what is considered when changing price
Definition
customer's and competitor's reactions
Term
buyer reactions to price changes are influenced by..
Definition
the meaning customers see in the price change
Term
Value delivery network
Definition
A network composed of the company, suppliers, distributors, and, ultimately, customers who partner to help the entire system deliver better customer value
Term
Marketing channel (or distribution channel)
Definition
A set of interdependent organizations that help make a product or service available for use or consumption y the consumer or business user
Term
Channel level
Definition
A layer of intermediaries that performs some work in bringing the product and its ownership closer to the final buyer
Term
Direct marketing channel
Definition
A marketing channel that has no intermediary levels
Term
Indirect marketing channel
Definition
A marketing channel containing one or more intermediary levels
Term
Channel conflict
Definition
Disagreements among marketing channel members on goals, roles, and rewards- who should do what and for what rewards
Term
Conventional distribution channel
Definition
A channel consisting of one or more independent producers, wholesalers, and retailers, each a separate business seeking to maximize its own profits, perhaps even at the expense of profits for the system as a whole
Term
Vertical marketing system (VMS)
Definition
A channel structure in which producers, wholesalers, and retailers act as a unified system. One channel member owns the others, has contracts with them, or has so much power that they all cooperate
Term
Corporate VMS
Definition
A vertical marketing system that combines successive stages of production and distribution under single ownership –channel leadership is established through common ownership
Term
Contractual VMS
Definition
A vertical marketing system in which independent firms at different levels of production and distribution join together through contracts
Term
Franchise organization
Definition
A contractual vertical marketing system in which a channel member, called a franchisor, links several stages in the production-distribution process
Term
Administered VMS
Definition
A vertical marketing system of coordinate successive stages of production and distribution through the size and power of one of the parties
Term
Horizontal marketing system
Definition
A channel arrangement in which two or more companies at one level join together to follow a new marketing opportunity
Term
Multichannel distribution system
Definition
A distribution system in which a single firm sets up two or more marketing channels to reach one or more customer segments
Term
Disintermediation
Definition
The cutting out of marketing channel intermediaries by product or service producers or the displacement of traditional resellers by radical new types of intermediaries
Term
Marketing channel design
Definition
Designing effective marketing channels by analysing customer needs, setting channel objectives, identifying major channel alternatives, and evaluating those alternatives
Term
Intensive Distribution
Definition
Stocking the product in as many outlets as possible
Term
Exclusive distribution
Definition
Giving a limited number of dealers the exclusive right to distribute the company’s products in their territories
Term
Selective distribution
Definition
The use of more than one but fewer than all of the intermediaries who are willing to carry the company’s products
Term
Marketing channel management
Definition
Selecting, managing, and motivating individual channel members and evaluating their performance over time
Term
value delivery network
Definition
network of partners used to create customer values

individual companies and brands don't compete, their entire value delivery networks do
Term
marketing channel (or distribution channel)
Definition
a set of interdependent organizations involved in the process of making a product or service available for use or consumption by the consumer or business user

through their contacts, experience, specialization, and scale of operation, intermediaries usually offer the firm more than it can achieve on its own
Term
marketing channel key functions (2)
Definition
1. complete transactions by: -gathering and distributing information -developing and spreading persuasive communications about an offer -performing contact work -matching -entering into negotiation 2. fulfill the completed transactions by -offering physical distribution -financing -risk taking
Term
channel alternatives open to a company
Definition
channel alternatives cary from direct selling to using one, two, three, or more intermediary channel levels
Term
three of the most important trends are the growth of...(3)
Definition
1. vertical
2. horizontal
3. multichannel marketing systems
Term
channel design process (2 steps)
Definition
1. assessing customer channel service needs and company channel objectives and constraints
2. identifies the major channel alternatives in the terms of the types, the number, and the channel responsibilities of intermediaries of each
Term
channel management calls for....
Definition
selecting qualified intermediaries and motivating them
Term
how do companies select, motivate, and evaluate channel members
Definition
producers vary in their ability to attract qualified marketing intermediaries

when selecting intermediaries, the company should evaluate each channel member's qualifications and select those that best fit its channel objectives

once selected, channel members must be continuously motivated to do their best
Term
place in the marketing mix
Definition
place is about where your product is available for sale
Term
distribution
Definition
the entire network of companies and processes that make sale happen efficiently
Term
value chain
Definition
design, production, marketing, delivery and support
Term
supply chain
Definition
the entire process from raw materials to customer; product production plus movement among stages
Term
downstream channel
Definition
manufacturer to end user
Term
intermediaries
Definition
people and firms involved in making a product available to consumers

(should accomplish the sale with the minimum number of contacts - shouldn't hire someone who doesn't add value)
Term
how channels add value (2)
Definition
1. transform product assortments made by manufacturers into assortments sought by consumers

breadth vs. depth

2. match supply and demand; network of producers/ suppliers/intermediaries - sometimes you go to the vendor for a specific product, sometimes the product goes to all vendors for you (ex: gum)
Term
breadth vs. depth
Definition
breadth - Walmart has everything, but they don't have every brand of everything

depth - Petsmart is one category, but they have every brand

another example is department stores (breadth) and boutiques (depth)
Term
functions channels perform (3)
Definition
1. transactional - ex: hugo boss & macys - once the inventory is bought, macys owns it and provide info to customers

2. logistical - physical distribution of goods, sorting, storing, and dispersing ex: warehouse/distributors, transporters

3. facilitating - financing, credit, market research, promotion ex: stores offer credit cards
Term
steps to designing a channel (4)
Definition
1. decide on distribution goals/roles (analyze consumer needs and company objectives & constraints)

2. identify major design criteria (types of intermediaries, numbers needed, roles in channel)

3. select strategy to achieve goals (channel structure, length)

4. execute strategy
Term
design criteria
Definition
target market coverage = density

ties to/reinforces overall image and positioning - exclusive, selective, intensive

consumer needs - what does consumer seek/ expect from trade intermediary - information, convenience, variety, adjunct services

profitability - cost to meet needs

control - function of product, competition, resources
Term
exclusive, selective, intensive
Definition
(design criteria)

cartier is exclusive
GAP is selective because it is available, but not everywhere
Starbucks and Dunkin Donuts are intensive because they are everywhere
Term
channel strategies (6)
Definition
1. conventional
2. multichannel/hybrid
3. vertical marketing system
4. horizontal market system
5. direct marketing
6. strategic channel alliances
Term
conventional
Definition
channel strategy

independent channel members working cooperatively
ex: manufacturer -> distributor/ warehouse -> retailer -> end user
Term
multichannel/hybrid
Definition
channel strategy

two channels for same product
ex: bricks and mortar, plus internet and catalog
Term
vertical marketing system
Definition
channel strategy

unifies manufacturers, wholesalers, and retailers

can be owned by one channel member (forward and/or bckward integration)
-backward ex: 7/11 owns citgo
-forward ex: goodyear tires have goodyear stores so you can get specific goodyear mechanics

can be contractual or franchises
ex: McDonalds -> they think you are representative of them, the franchisee thinks that it is just their business
Term
horizontal marketing system
Definition
channel strategy

intermediaries as same level work together to increase effectiveness and decrease costs
-ex: IGA - individual supermarkets band with other individual supermarkets and buy in bulk together so that it is cheaper for them
Term
direct marketing
Definition
channel strategy

consumers buy forms of media [telemarketing, internet] or in home sales
Term
strategic channel alliances
Definition
channel strategy

ex: cheerios brand product used Nestle outlet to get into an international market. Even though it says Nestle in that country it is a cheerio's product
Term
execute channel strategy steps (3)
Definition
1. select channel members
2. managing channel members
3. evaluating channel members
Term
types of intermediaries (3)
Definition
1. merchant wholesalers aka distributors
-buy goods from manufacturer and sell to resellers

2. merchandise agents and brokers
-brings buyers and sellers together
-never take title to product

3. manufacturer-owned intermediaries
-maintain consistent product image; control; geographic distribution
Term
common cost based strategies
Definition
standard markup
cost + percentage of cost
cost + fixed fee
experience curve pricing
target costing
yield management pricing
transportation/geographic
Term
common demand strategies
Definition
skimming
penetration pricing

trial
product line pricing

bundled pricing

psychological pricing
-odd/even
-prestige
Term
competition based strategies
Definition
price leadership

customary pricing

above, at, below [+ - or =] market

loss leader/promotional

sealed bid
Term
consumer based pricing
Definition
value pricing = good deal at price point

EDLP = everyday low price

dynamic pricing = immediate response to market or constatnly adjusted pricing based on an algorythm ex: ebay
Term
price fixing
Definition
conspiracy to set prices
illegal
Term
price discrimination
Definition
different prices changed to different buyers for like goods where competition is lessened or monopoly is creating

[most often affects promotional pricing]

illegal
Term
deceptive pricing
Definition
deals- suggested from former pricing that wasn't the actual price
Term
geographic pricing
Definition
when it lessens competition
Term
predatory pricing
Definition
lowball price to drive out competition
Term
revenue
Definition
selling price x volume
Term
contribution margin
Definition

aka gross profit margin 

 

revenue - costs of goods sold

Term
contribution
Definition
selling price per unit - variable cost per unit
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