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Small Business Management: Launching and Growing Entrepreneurial Ventures CHAPTER 16

the extent to which a good or service is perceived by a customer as meeting his or her needs or wants, measured by the customer’s willingness to pay for it
an agreement between a buyer and a seller that allows for delayed payment for a product or service
average pricing
an approach in which the total cost for a given period is divided by the quantity sold in that period to set a price
elasticity of demand
the degree to which a change in price affects the quantity demanded
elastic demand
demand that changes significantly when there is a change in the price of a product or service
in elastic demand
demand that does not change significantly when there is a change in the price or a product or service
break-even analysis
the examination of cost-revenue relationships and the incorporation of sales forecasts into the analysis
break-even point
sales volume at which total sales revenue equals total costs and expenses
contribution margin
the difference between the unit selling price and the unit variable costs and expenses
markup pricing
an approach based on applying a percentage to a product’s cost to obtain its selling price
penetration pricing strategy
a technique that sets lower than normal prices to hasten market acceptance of a precept or service or to increase market share
skimming price strategy
a technique that sets very high prices for a limited period before reducing them to more competitive levels
follow-the-leader pricing
a strategy that uses a particular competitor as a model in setting prices
variable pricing
a strategy that sets more than one price for a product or service in order to offer price concessions to certain customers
price lining strategy
a technique that sets a range of several distinct merchandise price levels
adaptive pricing
a technique that places different values on a product or service for customers with different needs
Selling on Credit
type of business, credit policies of competitors, ages and income levels of customers, availability of working capital, and economic conditions are factors that affect
trade credit
financing provided by suppliers to client companies
open charge account
a line of credit that allows the customer to obtain a product or service at the time of purchase, with payment due when billed
installment account
a line of credit that requires a down payment, with the balance paid over a specified period of time
revolving charge account
a line of credit on which the customer may charge purchases at any time, up to a pre-established limit
credit card
an alternative to cash who use provides assurance to a seller that a buyer has a satisfactory credit rating and that payment will be received from the issuing financial institution
debit card
an alternative to cash whose use results in an immediate withdrawal from the buyer’s bank account to pay for product or services
types of credit cards
bank, travel and entertainment, retailer
credit questions
Can the buyer pay as promised? Will the buyer pay? If so, when will the buyer pay? If not, can the buyer be forced to pay?
trade-credit agencies
privately owned organizations that collect credit information on businesses
credit bureaus
privately owned organizations that summarize a number of firms’ credit experiences with particular individuals
aging schedule
a categorization of accounts receivable based on the length of time they have been outstanding
bad-debt ratio
the ratio of bad debts to credit sales
the seller’s measure of what he or she is willing to receive in exchange for transferring ownership or use of a product or service is known as
sales volume, price
the total sales revenue of a small business is a direct reflection of _____ ______ and _____
total fixed cost
Will’s business will not be successful unless it charges a price for its product that covers its
cost of goods sold
costs incurred by a firm in actual producing a product (e.g., materials, machinery, etc.) are considered to be part of
prestige pricing
A pricing tactic whereby a firm sets a high price to convey an image of high quality or uniqueness is known as
comprehensive break-even analysis
examining revenue-cost relationships and establishing sales forecasts
costs, revenue
Within the framework of a break-even analysis, an examination of ___ and ____ is conducted to determine the quantity at which the product, with an assumed price, will generate enough revenue to start earning a profit.
selling price
Markup pricing may be expressed in terms of a percentage of either the ____ or the cost.
consumer credit
Credit granted by retailers to final consumers who purchase for personal or family use is referred to as
Credit cards are usually based on a _____ account system.
down payment
Installment accounts normally require a
credit limit
In a revolving charge account, charged purchases may not exceed the _____.
the fundamental integrity and honesty that should underlie all human and business relationships; business policies and ethical practices of the firm; C of Credit
ability to conserve assets, and to faithfully and efficiently follow a financial plan; utilize invested capital wisely and capitalize business opportunities; C of Credit
consists of the cash and other liquid assets owned by the customer; should have enough of this to underwrite planned operations; C of Credit
designated security given as a pledge for fulfillment of an obligation; secondary source for loan repayment if borrower doesn’t repay loan with cash; C of Credit
factors that influence if a business will repay its debts (business cycles, price levels, economic recession, competition, labor problems, fires); C of Credit

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