4.5(b) - Price

Question 1

Competitive pricing

Answer 1

is the practice of a business setting the price of its goods or services at the same or similar level to that of its competitors

Question 2

Contribution pricing

Answer 2

is the practice of setting the selling price of a product higher than the direct costs of production per unit in order to ensure that there is a positive contribution made towards payment of indirect costs

Question 3

cost-plus pricing (or mark-up pricing)

Answer 3

involves adding a percentage or specific amount of profit to the cost per unit of output in order to determine the selling price

Question 4

dynamic pricing

Answer 4

is the practice of varying the price of a good or service to reflect the changing market demand, such as during different times of the day or year

Question 5

Loss leader pricing

Answer 5

involves setting the price of a good or service below its cost of production. The purpose is to entice customers to buy other products with high profit margins in addition to purchasing the loss leader product.

Question 6

Mark-up

Answer 6

refers to the extra amount charged by a business on top of its unit costs of production in order to earn a positive profit margin. The mark-up can be expressed as an absolute amount (e.g. $10 per unit) or as a percentage of the cost (e.g 75% per unit)

Question 7

Penetration pricing

Answer 7

involves setting low prices in order to gain entry into a new market. Once the product or brand has established market share, prices can be raised

Question 8

Predatory pricing

Answer 8

involves temporarily setting prices so low that competitors, especially smaller businesses, cannot compete at a profitable level

Question 9

Premium pricing

Answer 9

Is when the price of a good or service is set significantly higher than similar competing products, usually because the product is of higher quality or is sufficiently unique to justify the premium price

Question 10

Price

Answer 10

refers to the value of a good or service. It is the amount paid by a customer to purchase the product

Question 11

Price elasticity of demand (PED)

Answer 11

measures the degree of responsiveness of demand for a product due to a change in the price of that product

Question 12

Price wars

Answer 12

involve businesses competing by a series of continuous and/or intensive price cuts to threaten the competitiveness of rival firms in the market

Question 13

Pricing methods

Answer 13

are the various methods of. setting the amount that customers pay for certain goods and services