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Business Chapter 14 Study Guide.docx


Department
Business Administration
Course Code
BUS 201
Professor
Peter Tingling

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Pricing
Deciding what the company will receive in exchange for its product
Pricing to meet business objectives
Pricing objectives
oProfit-maximizing
oMarket share pricing
A company’s percentage of the total market sales for a specific product
Price setting tools
Cost-oriented pricing
oTakes into account the need to cover production costs
Break-even analysis: Cost-volume-profit relationships
oVariable costs
Those costs that change with the number of goods or services produced
or sold
oFixed costs
Those costs unaffected by the number of goods or services produced or
sold
oBreak-even analysis
An assessment of how many units must be sold at a given price before
the company begins to make a profit.
oBreak-even point
The number of units that must be sold at a given price before the
company covers all of its variable and fixed costs.
Pricing strategies
Pricing existing products
oSet either above, below, or at the market price
Pricing new products
oPrice skimming
The decision to price a new product as high as possible to earn the
maximum profit on each unit sold

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oPenetration pricing
The decision to price a new product very low to sell the most units
possible and to build customer loyalty.
Fixed versus dynamic pricing
Pricing tactics
Price lining
oThe practice of offering all items in certain categories at a limited number of
predetermined price points
Psychological pricing
oThe practice of setting prices to take advantage of the illogical reactions of
consumers to certain types of prices
Off-even pricing
oA form of psychological pricing in which prices are not even stated in dollar
amounts
Discount
oAny price reduction offered by the seller to persuade customers to purchase a
product
Cash discounts
Seasonal discounts
Trade discounts
Quantity discounts
Distribution mix
The combination of distribution channels a firm selects to get a product to end-users
Intermediaries and distribution channels
Intermediaries
oAny individuals or firms other than the producer that participate in a product’s
distribution.
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