BUS 201 Chapter Notes - Chapter 13: Psychological Pricing, Price Skimming, Sales Promotion

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BUS 201 – Ch. 13
LO 1 – Identify the various pricing objectives that govern pricing decision, and
describe the price-setting tools used in making these decisions.
- pricing = process of determining what a company will receive in exchange for its
products
- pricing objectives = goals that sellers hope to achieve in pricing products for sale
- pricing decisions influenced by need to compete in marketplace, social/ethical
- market share/penetration = company’s % of total industry sales for a specific
product type
- cost-oriented pricing = considers firm’s desire to make a profit and its need to
cover production costs
- markup = amount added to an item’s purchase cost to sell it at a profit
- variable cost = changes w/ quantity of product produced & sold
- fixed cost = incurred regardless of quantity of a product produced and sold
- breakeven analyses = for a particular selling price, assessment of seller’s costs vs
revenues at various sales volumes
- breakeven point = sales volume at which the seller’s total revenue from sales
equals total costs (variable & fixed) w/ neither profit nor loss
LO 2 – Discuss pricing strategies that can be used for different competitive
situations and identify the pricing tactics that can be used for setting prices.
- 3 options for pricing: above prevailing market prices to take advantage of
assumption that higher price mean higher quality, below market prices while
offering product of comparable quality to higher-priced competitors, at/near
market price
- price skimming = setting an initially high price to cover new product costs and
generate a profit
- penetration pricing = initially low price to establish a new product in the market
- price lining = setting limited # of prices for certain categories of products
- psychological pricing = takes advantage of the fact that consumers do not always
respond rationally to stated prices
- odd-even pricing = psychological pricing tactic based on premise that customers
prefer prices not stated in even dollar amounts
- discount = price reduction offered as incentive to purchase
LO 3 – Identify the important objectives of promotion and discuss the
considerations in selecting a promotional mix.
- promotion = aspect of marketing mix concerned w/ most effective techniques for
communicating info about & selling a prod
- push strategy = promotional strategy in which a company aggressively pushes its
prod thru wholesalers & retailers, which persuade customers to buy it
- pull strategy = company appeals directly to customers, who demand prod from
retailers, who in turn demand product from wholesalers, who in turn demand prod
from manufacturer
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- advertising pulls, personal selling pushes
- makers of indus prod push, makers of consumer prod pull, large firms use both
- promotional mix = portion of marketing concerned w/ choosing the best
combination of advertising, personal selling, sales promotions, publicity to sell
- 5 stages in buyer decision process:
1. consumers first recognize need to make a purchase, marketers use
advertising and publicity (reach many ppl quickly) to make sure buyers are
aware of their products
2. as consumers search for info about avail prod, advertising & personal
selling are important methods to educate them
3. personal selling can become vital as consumers compare competing
products, sales reps can demonstrate product quality, features, benefits,
performance in comparison w/ competitors’ products
4. when buyers are ready to purchase products, sales promotion can give
consumers an incentive to buy, personal selling can help by bringing
products to convenient purchase locations
5. after making purchases, consumers evaluate products and note strengths
& deficiencies  advertising & personal selling reminds ppl they made wise
purchases
LO 4 – Define the role of advertising and describe the key advertising media.
- advertising = paid, non-personal communication by which identified sponsor
informs an audience about a product
- advertising media = specific communication device (television, radio, internet,
newspapers, direct mail, magazines, billboards) used to carry a firm’s advertising
message to potential customers
- newspapers:
 widely used traditional advertising medium
 offer excellent coverage, flexible rapid coverage
 believable b/c ads are next to news
 larger % of indivs w/ higher edu & income level tend to read newspapers
 need to survive a digital age  digital version
- television:
 appeals to all viewer’s senses b/c combines sight, sound, motion
 allows advertisers to promote to target audiences
 nat’l advertising done on tv b/c reaches more ppl than any other medium
 disadvantage: too many commercials & too short, viewers confuse
products & viewers who record on DVR fast-forward thru ads
 most expensive advertising medium
 product placement = use brand-name prod as part of actual storyline of TV
shows
- direct mail:
 flyers/other types of printed ads mailed directly to consumers’ homes/etc
 allows company to select audience & personalize message
 goal is to generate immediate response & to have customer contact firm
directly
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