Marketing Chapter 5: Pricing and its Importance

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Questions and Answers

What is the basis of markup pricing?

The cost of buying the product from the producer, plus amounts for profit and expenses (correct)

The price of similar products sold by competitors

The retailer's desired profit margin

The price set by the producer

What is the condition for profit maximization?

Total profit is equal to zero

Marginal revenue equals marginal cost (correct)

Total revenue is greater than total cost

Marginal revenue is greater than marginal cost

What is the primary role of price in the evaluation of product alternatives?

To measure the quality of the product

To represent the sacrifice made to acquire a good or service (correct)

To inform about the product features

To determine the target market

What is the purpose of break-even analysis?

To determine the sales volume required to break even Signup and view all the answers

What is the relationship between price and quality according to research?

Higher quality equals higher price Signup and view all the answers

What is the key to revenues for an organization?

Prices charged to customers Signup and view all the answers

What is price skimming?

A pricing policy that sets a high introductory price Signup and view all the answers

What is the primary goal of managers when setting a price?

To charge a price that equals the perceived value to target consumers Signup and view all the answers

What is keystoning?

Marking up merchandise 100 percent over cost Signup and view all the answers

What determines the selling price in markup pricing?

The cost of buying the product from the producer, plus amounts for profit and expenses Signup and view all the answers

What is the method used by wholesalers and retailers to establish a selling price?

Markup pricing Signup and view all the answers

What is revenue in the context of marketing?

The price charged to customers multiplied by the number of units sold Signup and view all the answers

What is the advantage of break-even analysis?

It provides a quick estimate of the sales volume required to break even Signup and view all the answers

What is the goal of profit maximization pricing?

To maximize profit Signup and view all the answers

What is the outcome of choosing a price that is too high or too low?

Decreased revenue Signup and view all the answers

What is the relationship between price and waiting time?

Longer waiting time is a cost that is factored into the price Signup and view all the answers

Study Notes

Overview of Price and Its Importance

Price is what 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: price is a sacrifice made to acquire a good or service, which may include time lost while waiting to acquire the good or service
- The Information Effect: higher quality is often inferred from higher prices

Pricing Objectives

Prices are key to revenues, which in turn are key to profits for an organization
Managers strive to charge a price that will earn a fair profit, balancing perceived value to target consumers

The Cost Determinant of Price

Markup Pricing:
- Most popular method used by wholesalers and retailers to establish a selling price
- Does not directly analyze the costs of production
- Uses the cost of buying the product from the producer, plus amounts for profit and expenses
- Example: an item costs RM1.80 and is sold for RM2.20, carrying a markup of RM0.40 (22% of the cost)
Profit Maximization Pricing:
- Occurs when marginal revenue equals marginal cost
- Marginal cost: change in total costs associated with a one-unit change in output
- Marginal revenue: extra revenue associated with selling an extra unit of output
- Point of profit maximization: where marginal revenue equals marginal cost
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
- Advantage: 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

Other Determinants of Price

No specific points mentioned in the text

Setting the Right Price

Price Strategy:
- Price Skimming: charges a high introductory price, often coupled with heavy promotion
- Penetration Pricing: charges a relatively low price for a product initially as a way to reach the mass market

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Description

This quiz covers the fundamentals of pricing in marketing, including pricing objectives, cost determinants, and setting the right price. Understand the importance of price in marketing and its roles in evaluating products.