Domain 6: Manage Pricing Decisions

Question 1

Establishing a competitive advantage by having the lowest cost of operation in the industry. Cost leadership is often driven by company efficiency, size, scale, scope and cumulative experience (learning curve).

Answer 1

Cost Leadership

Question 2

A marketing strategy used by businesses to attract customers to a new product or service.

Answer 2

Penetration Pricing

Question 3

Represents the percentage of an industry, or market’s total sales, that is earned by a particular company over a specified time period.

Answer 3

Market Share

Question 4

A product pricing strategy by which a firm charges the highest initial price that customers will pay and lowers it over time.

Answer 4

Price Skimming

Question 5

The short run or long run process by which a firm may determine the price, input, and output levels that lead to the greatest profit.

Answer 5

Profit Maximization

Question 6

Is a pricing model that prices a business based on what an investor would want to make from any capital invested in the company.

Answer 6

Target ROI

Question 7

A measure of the change in the quantity demanded or purchased of a product in relation to its price change.

Answer 7

Price elasticity of demand

Question 8

Involves the setting of prices based on what rivals are charging.

Answer 8

Competitor-based pricing

Question 9

A competitive exchange among rival companies who lower prices to undercut one another.

Answer 9

Price war

Question 10

The situation whereby the prices of goods and services offered in the marketplace either change very slowly or do not change at all.

Answer 10

Price stability

Question 11

A price-setting strategy where prices are set primarily on a consumers’ perceived value of the product or service.

Answer 11

Value-based pricing

Question 12

AKA price lining, a marketing process wherein products or services within a specific group are set at different price points. The higher the price, the higher the perceived quality to the consumer.

Answer 12

Product line pricing

Question 13

Prices at which demand for a given product is supposed to stay relatively high.

Answer 13

Price Points

Question 14

A method in which one of two or more complementary products (a deskjet printer, for example) is priced to maximize sales volume, while the complementary product (printer ink cartridges) are priced at a much higher level in order to cover any shortfall sustained by the first product.

Answer 14

Captive pricing (or complementary pricing)

Question 15

Combining several products or services into a single comprehensive package for an all-inclusive reduced price. Despite the fact that the items are sold for discounted prices, it can increase profits because it promotes the purchase of more than one item.

Answer 15

Price bundling

Question 16

The price that a purchaser announces that it is willing to pay for a good or service. It is used by high-volume purchasers to inform suppliers. Requires consumers to have access to price and quality information, which is not general practice in many industries. Further, it does not help consumers with urgent needs, cognitive and/or other impairments.

Answer 16

Reference pricing

Question 17

Marketing strategy where prices are set higher than normal because lower prices will hurt instead of helping sales, such as for high-end perfumes, jewelry, clothing, cars, etc. Also called image pricing.

Answer 17

Prestige pricing

Question 18

This method involves setting a price in odd numbers (just under round even numbers) such as $49.95 instead of $50.00. Originally, this practice was meant to prevent pilfering of cash by forcing a cashier to open the cash-register (to pay change to the customer) and thus register the transaction.

Answer 18

Odd pricing

Question 19

Pricing at even numbers instead of odd numbers. Besides quantity, Even pricing can be used to denote quality. Pricing at 99 or 49 has become so common, that pricing at even values can be a standout from the crowd. However, even pricing is used very seldom and in the combination of Odd even pricing, odd pricing takes the upper hand.

Answer 19

Even pricing

Question 20

Based on the belief that certain prices or price ranges are more appealing to buyers.

Answer 20

Psychological pricing

Question 21

A strategy in which the seller offers the same price to every customer. In other words, the price does not vary according to payment method or promotional offers.

Answer 21

One-price strategy

Question 22

A pricing strategy in which the price of a good or service may vary based on region, sales location, date, or other factors. Variable pricing strategies adjust product prices to achieve optimal balances between sales volume and income per unit sold based on the characteristics of different categories of points-of-sale.

Answer 22

Variable pricing

Question 23

A pricing strategy promising consumers a low price without the need to wait for sale price events or comparison shopping.

Answer 23

Everyday low pricing (EDLP)

Question 24

A type of pricing strategy adopted by companies, usually small and medium-sized retail firms, where a firm charges a high price for an item and later when the item’s popularity has passed, sell it to customers by giving discounts or through clearance sales.

Answer 24

High/low pricing

Question 25

Common name for several types of sales where the price is neither set nor arrived at by negotiation, but is discovered through the process of competitive and open bidding. T

Answer 25

Auction pricing

Question 26

Several buyers bid for one seller’s good(s).

Answer 26

Forward auction

Question 27

Auctions in which several sellers bid for one buyer’s order.

Answer 27

Reverse auctions

Question 28

A cost-based method for setting the prices of goods and services. Under this approach, you add together the direct material cost, direct labor cost, and overhead costs for a product, and add to it a markup percentage (to create a profit margin) in order to derive the price of the product.

Answer 28

Cost-plus pricing

Question 29

Using this method, markup is reflected as a percentage by which initial price is set above product cost as reflected in this formula: markup amount/item cost=markup percentage. The item is marked up by a certain percentage.

Answer 29

Markup on cost

Question 30

Markup is viewed as a percentage of the selling price and not as a percentage of cost as it is with the Markup-on-Cost method. In this method, markup is calculated thus: markup amount/selling price=markup percentage.

Answer 30

Markup on sales price

Question 31

A pricing strategy that regulators impose on certain businesses to limit what they are able to charge consumers for its products or services to a price equal to the costs necessary to create the product or service. This implies that businesses will set the unit price of a product relatively close to the average cost needed to produce it.

Answer 31

Average cost pricing

Question 32

The process of setting an item’s price by using an equation to compute the price that will result in a certain level of planned profit given the sale of a specified amount of items.

Answer 32

Target return pricing

Question 33

Offering of a product or a service at a price lesser than the marked or the original price.

Answer 33

Discounts

Question 34

Another type of reduction from the list price. For example, trade-in allowances are price reductions given for turning in an old item when buying a new one. Trade-in allowances are most common in the car industry, but are also given for other durable goods. Promotional allowances are payments or price reductions to reward dealers for participating in advertising and sales-support programs.

Answer 34

Allowances

Question 35

A deduction allowed by the seller of goods or by the provider of services in order to motivate the customer to pay within a specified time. The seller or provider often refers to the cash discount as a sales discount. The buyer often refers to the same discount as a purchase discount.

Answer 35

Cash discount

Question 36

An amount or rate by which the catalog, list, or retail price of an item is reduced when sold to a reseller. This reflects the reseller’s profit margin and usually varies directly with the quantity of the item purchased.

Answer 36

Trade discounts

Question 37

An incentive offered to a buyer that results in a decreased cost per unit of goods or materials when purchased in greater numbers. This is often offered by sellers to entice buyers to purchase in larger quantities.

Answer 37

Quantity discounts

Question 38

A discount which is offered on seasonal goods or at particular seasons.

Answer 38

Seasonal discounts

Question 39

Compensation offered by the manufacturer to the retailer for promoting a product or service.

Answer 39

Promotional allowances

Question 40

A term in international commercial law specifying at what point respective obligations, costs, and risk involved in the delivery of goods shift from the seller to the buyer under the Incoterms standard published by the International Chamber of Commerce.

Also used in modern domestic shipping within the United States to describe the point at which a seller is no longer responsible for shipping cost.

Answer 40

Free on Board (FOB) Pricing

Question 41

• Pricing that includes all transportation costs and where the seller retains the title to the goods until they are delivered to the customer. Two basic kinds of UDP are: (1) Single-zone pricing where all customers, irrespective of their distance from the seller, pay the same delivered price. Also called postage stamp pricing. (2) Multi-zone pricing where a geographic area is divided into zones according to the distance from the seller’s dispatch point. Whereas different prices are charged for different zones, prices remain the same within a zone.

Answer 41

Uniform delivered pricing

Question 42

The process of setting prices for goods or services based on the location where they will be offered for sale to consumers. In using a zone pricing strategy, a company typically keeps its prices to distributors consistent within a particular zone but will usually raise its prices within zones that are further away from its manufacturing facilities to help account for higher transport costs.

Answer 42

Zone pricing

Question 43

The amount something must be changed in order for a difference to be noticeable, detectable at least half the time (absolute threshold).

Answer 43

Just-noticeable difference

Question 44

An agreement between participants on the same side in a market to buy or sell a product, service, or commodity only at a fixed price, or maintain the market conditions such that the price is maintained at a given level by controlling supply and demand.

Answer 44

Price-fixing

Question 45

A pricing strategy that charges customers different prices for the same product or service. In pure price discrimination, the seller charges each customer the maximum price that he is willing to pay.

Answer 45

Price discrimination

Question 46

The method by which retailers use deceptive means to trick the customers into thinking that they are paying a lower price for the product than what they are actually supposed to.

Answer 46

Deceptive pricing

Question 47

A sales tactic that lures customers with low prices on unavailable items with the aim of upselling them on a similar, pricier item. It is considered a form of retail sales fraud, though it takes place in other contexts. While many countries have laws against using bait and switch tactics not all occurrences constitute fraud.

Answer 47

Bait and switch

Question 48

The illegal act of setting prices low in an attempt to eliminate the competition. Breaks anti-trust laws, as it makes markets more vulnerable to a monopoly.

Answer 48

Predatory pricing

Question 49

Protect businesses and governments from companies or countries attempting to dump goods into a marketplace at low prices or with unfair subsidies.

Answer 49

Fair trade laws

Question 50

Prohibits selling items of merchandise below cost.

Answer 50

Minimum markup laws

Question 51

Product or services that are offered at a price that is not profitable, but is sold or offered in order to attract new customers or to sell additional products and services to those customers. This is a common practice when a business first enters a market. Essentially, a loss leader introduces new customers to a service or product in the hope of building a customer base and securing future recurring revenue.

Answer 51

Loss leader products