23. Pricing

Question 1

What is Price

Answer 1

The amount paid by the customer

Question 2

What factors must a business consider when setting a price?

Answer 2

Market conditions
Production costs
Taxes and subsidies
Business objectives
Market structure

Question 3

What is full cost pricing

Answer 3

Calculate the cost of production then add a fixed profit margin

Question 4

What is the advantage of full cost pricing

Answer 4

Price will cover costs

Question 5

What are the disadvantages of full-cost pricing

Answer 5

Not flexible

Does not take into account market conditions

Question 6

What is contribution pricing

Answer 6

Calculate the variable costs of production and set a price based on it

Question 7

What are the advantages of contribution pricing

Answer 7

Flexible

Question 8

What are the disadvantages of contribution pricing

Answer 8

Constantly fluctuating prices may annoy customers

Might not cover all fixed costs

Question 9

What is competitor pricing

Answer 9

Calculate the price based on that of your rival’s

Question 10

Advantages of competitor pricing

Answer 10

Rivals cannot undercut you

Question 11

Disadvantages of competitor pricing

Answer 11

Prices may not cover costs

Question 12

Penetration pricing

Answer 12

setting a low price to enter the market

Question 13

advantage of penetration pricing

Answer 13

take out rival brands due to low price

Question 14

disadvantages of penetration pricing

Answer 14

Not sustainable and once you raise your price customers may leave

Question 15

Price skimming

Answer 15

setting a high price to enter the market

Question 16

advantages of price skimming

Answer 16

reputation for high-quality product

high levels of revenue

Question 17

disadvantages of price skimming

Answer 17

demand is reduced

a lowered price may create the feeling of a decrease in quality

Question 18

psychological pricing

Answer 18

setting a price that evokes an emotional response in a customer

Question 19

advantages of psychological pricing

Answer 19

make high levels of revenue without reducing the price too much

Question 20

destructive pricing

Answer 20

cutting prices significantly to destroy new competition

Question 21

advantages of destructive pricing

Answer 21

gain high sales and possible customer loyalty

Question 22

disadvantages of destructive pricing

Answer 22

demand may reduce once the price goes back up