3.06 Vocabulary
1. Automated pricing: allows the programmer to set the qualifications and then the system awards the
targeted price when the conditions have been met.
2. Bait and Switch Advertising: First, customers are "baited" by advertising for a product or service at a
low price; second, the customers discover that the advertised good is not available or the sales
person disparages the advertised item and customers are "switched" to a higher priced product.
3. Break even point: the point at which sales revenue equals the cost and expenses of making a
distributing a product; there is no profit here.
4. Cash discounts: offered to customers to encourage them to pay their bills quickly.
5. Competition oriented pricing: prices are set on the basis of what competitors charge.
6. Competition: rivalry between two or more businesses for scarce consumer dollars.
7. Cost of goods sold: the total amount spent to produce or buy the goods sold (largest single factor in
establishing retail price of item).
8. Cost oriented pricing: businesses first determine the cost of producing or marketing the product and
then add their desired profit; expenses are calculated separately for each individual item.
9. Cost plus pricing: all costs & expenses are added to the desired profit to determine the selling price.
10. Cost to produce: materials, labor, research & development, distribution/shipping, packaging,
overhead, etc.
11. Deceptive Pricing: The pricing of goods and services in such a way as to cause a customer to be
misled; an example of deceptive pricing is bait-and-switch.
12. Demand oriented pricing: based on what current consumers are willing to pay for good/service.
13. Discount pricing: reduction from list price.
14. Dumping: the practice of is any kind of predatory pricing, especially in the context of international
trade. It occurs when manufacturers export a product to another country at a price either below the
price charged in its home market, or in quantities that cannot be explained through normal market
competition.
15. Expenses: money which must be paid out in order to operate the business.
16. False/ deceptive advertising: the use of false or misleading statements in advertising. As advertising
has the potential to persuade people into commercial transactions that they might otherwise avoid.
examples of deceptive pricing are Savings claims, price comparisons, "special" sales, "two-for-one"
sales, "factory" prices, or "wholesale" prices.
17. Fixed expenses: costs that remain the same from one month to the next; rent, computer leasing,
salaries, insurance, phone service.
18. Fixed pricing: same pricing to all customers no matter how many (quantity) are purchased.
19. Flexible price policy: customers are allowed to bargain for merchandise; consumer can negotiate on
the final cost; encourages customers to bargain with sellers to obtain the best price; aka “variable
pricing policy.”
20. Geographic pricing: different prices for customers in different parts of the world.
21. Gross profit: the difference between the selling price and the cost of goods sold (also called gross
margin).
22. Loss leaders: pricing products near or below cost to attract customers; purpose is to increase
customer traffic, thus increase sales of profitable items.
23. Markdown: actual reductions in selling price.
3.06 Vocabulary
24. Markup pricing: adding an amount (markup) to the cost of goods to reach a selling price; the
simplest pricing method; usually a percentage of cost.
25. Monopolistic competition: A large number of suppliers offer similar, but not identical products. The
similarities ensure elastic demand whereas the slight differences give some monopolistic power to the
supplier.
26. Monopoly: One seller who dominates many buyers. The monopolists can use his market power to set
a profit-maximizing price.
27. Net profit: the difference between the selling price and ALL costs/expenses (generally 1% - 5%);
income – cost of goods sold – operating costs/expenses = net profit/loss.
28. Non-price competition: using factors other than price to attract customers – ie CRM.
29. Odd-even pricing: idea that prices ending in odd digit convey a bargain image ($79.99; .99;) and
those that end in even digits convey an image of quality ($100; $50).
30. Oligopoly: Where are relatively few competitive companies dominate the market while each large
firm has the ability to influence market prices the unpredictable reaction from the other giants makes
the final industry price in determinate. Cartels are often formed.
31. One price policy: consumers generally do not negotiate pricing; all customers are charged the same
price for a product.
32. Operating expenses: the costs of running the business.
33. Optional product pricing: used for incremental sales.
34. Penetration pricing: initial price for product is set very low; setting a low price on a new product;
Setting a low price to motivate customers to purchase when introducing a product into a competitive
market and attempting to gain customer trial.
35. Perfect competition: Many buyers and many sellers all dealing in an identical product. Neither
producer nor user has any market power and both must accept the prevailing market price.
36. Predatory pricing: practice of selling a product or service at a very low price, intending to drive
competitors out of the market.
37. Prestige pricing: setting higher than average prices to suggest status, quality or exclusiveness.
Customers equate high price with high quality. This technique sets a higher-than average price for
products to communicate quality and status.
38. Price: money value of good or service; amount charged to customers in exchange for goods and
services; communicates value to customers and profit to business owners.
39. Price competition: using price as a means to attract customers.
40. Price discrimination/differentiation: exists when sales of identical goods or services are transacted at
different prices from the same provider
41. Price fixing: collaborating with other companies (competitors) to set prices for a company’s products;
agreement among competitors to raise, fix, or otherwise maintain the price at which their goods or
services are sold, price fixing is illegal.
42. Price lining: setting a limited number of prices for a line of products; establishing price points
between products in a product line; used to communicate differences in quality and/or service to
consumers.
43. Pricing objectives: goals a company hopes to achieve through it pricing decisions.
44. Pricing variations: ‘off-peak’ pricing, early booking discounts, etc
45. Profit: the money a business earns after all costs and expenses have been paid.
3.06 Vocabulary
46. Promotional pricing: Selling a product at a temporarily lower price to attract customers; pricing
products at low levels and then heavily advertising them; 2 kinds – loss leaders & special event
pricing.
47. Psychological pricing: techniques that create an illusion for customers or make shopping easier; Used
by organizations that believe that customers base their perceptions of products on price & that these
perceptions affect buying decisions; to get a customer to respond on an emotional, rather than
rational basis.
48. Quantity discounts: received by buyers for placing large orders.
49. Sales Income/Revenue: money coming into the business from the sale of goods or services.
50. Selling Price: The amount a seller charges the purchaser for a good or a service.
51. Skimming pricing: a very high price is set on the product initially; Setting a high price to capitalize
on demand when introducing a product that has little competition and will appeal to customers who
like to be the first to have the latest products.
52. Special event pricing: sales events designed to attract customers & encourage purchases; items are
reduced in price for a short period of time; “back to school sale.”
53. Targeted pricing: allows a company to charge different prices to new customers it is trying to entice
than to established customers who need no other incentive to by the company’s brand.
54. Unit pricing: prices are stated in terms of standard unit of measure.
55. Variable expenses: expenses that change from one month to the next depending on the needs of
the business; production costs, raw material, distribution costs, advertising.