Chapter 11 - Pricing Concepts for Establishing Value

Question 1

The 5 C’s of pricing

Answer 1

1. Company objectives
2. customers
3. channel members
4. cost
5. competition

Question 2

4 pricing orientations

Answer 2

1. profit-oriented
2. cost-oriented
3. competitor-oriented
4. customer-oriented

Question 3

What is the relationship between price and quantity sold

Answer 3

Demand increases when price decreases

Question 4

What is price elasticity

Answer 4

measures how change in price affects demand. The ratio of the percentage of of quantity to the percentage change of price

Question 5

elastic

Answer 5

when price elasticity is less than -1, the market for the product is price sensitive

Question 6

inelastic

Answer 6

when price elasticity is more than -1, the market for the product is price insensitive

Question 7

break-even point

Answer 7

is the point which the number of units sold generates just enough revenue to equal the total costs. Profits equal zero at this point.

Question 8

how to calculate the break-even point

Answer 8

equals fixed costs divided by contributions per unit, which is the price of a unit minus the variable cost

Question 9

what are the 4 competition levels

Answer 9

1. monopoly
2. monopolistic competition
3. oligopoly
4. pure competition

Question 10

Monopoly

Answer 10

there is less price competition and fewer firms, and one firm controls the market

Question 11

monopolistic competition

Answer 11

there is less price competition and many firms, and there are many firms selling differentiated products at different prices

Question 12

oligopoly

Answer 12

there are more price competitions and fewer firms, and there are a handful of firms which control the market

Question 13

pure competition

Answer 13

there are more price competitions and many firms, and there are many firms selling the same commodities at same prices

Question 14

what are the 3 methods to set prices

Answer 14

1. cost-based pricing
2. competitor-based pricing
3. value-based pricing

Question 15

price skimming

Answer 15

setting high prices for adopters who are willing to bay the high price to have the innovation first

Question 16

market penetration

Answer 16

setting initial low prices, expecting unit costs to drop as volume sold increases, which is known as the experience curve effect

Question 17

tactics to reduce price for consumers

Answer 17

markdowns
quantity discounts
seasonal discounts
coupons
rebates
leasing
price bundling 
leader pricing
price lining

Question 18

tactics to reduce price for businesses

Answer 18

quantity discounts
seasonal discounts
cash discounts
allowances
uniform delivered vs. zone pricing