GLOSSARY
COMPETENCY:9.00 Explain pricing strategies for making effective pricing decisions.
Cash discounts: Discounts offered to buyers as an incentive for paying the invoice amount within a specified number of days.
Competition: A rivalry between businesses to attract scarce consumer dollars.
Cost of merchandise sold: The amount paid by a business for products purchased for resale or for use in the production of other goods.
Cost-oriented pricing: Implemented by carefully examining all of the costs associated with carrying a product and selling it to consumers then adding the desired profit to arrive at a selling price.
Cost-plus pricing: A pricing strategy that examines costs for individual products or services and adds a standard markup.
Cumulative quantity discounts: Based on a buyer’s total purchases during a specified period of time.
Demand: The number of products consumers are willing to buy at a given time and a given price.
Demand oriented pricing: Most effective when selling products with inelastic demand, this pricing strategy requires price planners to estimate the value customers place on products and set prices accordingly.
Direct competition: Competition between businesses that have similar formats and sell similar products.
Elastic demand: Demand that is sensitive to a change in price of the product.
Fixed costs: Costs that remain constant over a period of time regardless of sales volume.
Fixed pricing: (One-Price Policy) A policy under which an organization charges the same prices to all customers regardless of the quantity of the purchase.
Indirect competition: Competition between businesses that have dissimilar formats and sell dissimilar products.
Inelasticdemand: Demand that is not sensitive to a change in price of the product.
Loss leaders: A product that is sold below costs in an effort to increase customer traffic.
Markdowns: Reductions in selling price used to stimulate sales, dispose of slow moving/discontinued merchandise, meet competitors’ prices, and/or increase customer traffic.
Market price: The price that prevails in the market for a particular good at a specific time.
Markup pricing: Pricing strategy that adds a predetermined percentage to the cost of products.
Non-price Competition: Competition based on factors other than price as a means to attract customers.
Non-cumulative quantity discounts: Reductions given to buyers for a one-time purchase or shipment.
Odd/even cent pricing: Psychological pricing technique based on the principle that prices ending in odd numbers ($5.99) communicate a bargain and prices ending in even numbers ($6.00) communicate quality.
Opportunity cost: The opportunity cost is the option that is given up when a consumer chooses one product/service over another.
Penetration pricing: Setting a low price when introducing a product into a competitive market to motivate customers to purchase.
Prestige pricing: Pricing technique that sets a higher-than-average price for products in order to communicate quality and status.
Price: The amount charged to customers in exchange for goods and services.
Price Competition: Competition that uses price as the primary means to attract customers.
Price lining: Establishing price points between products in a product line to communicate differences in quality and/or service to consumers.
Profit: Revenue remaining after the expenses of running the business have been deducted from income.
Promotional pricing: Selling a product at a temporarily lower price in order to attract customers.
Psychological pricing: Pricing technique based on the belief that customers form their perceptions of products on price and these perceptions affect customer buying decisions.
Quantity discounts: Reduction in price given by manufacturers/ wholesalers when a large or specified quantity is purchased.
Skimming pricing: Setting a high price when introducing a product that has little competition and will appeal to customers who like to be the first to have the latest products.
Supply: The number of products manufacturers are willing to produce at a given time and at a given price.
Trade discounts: (Functional discounts) Discounts offered to channel members for performing certain functions like storing or record keeping.
Unit pricing: Stating the price of a product per unit of standard measure.
Variable costs: Costs that vary based on sales volume or changes in business needs.
Variable pricing: (Flexible-Price Policy) Pricing technique that encourages customers to bargain with sellers in an effort to obtain the best price for products and services.