Pricing Flashcards
What is the primary role of pricing in marketing?
To generate revenue and communicate value to customers.
Why is pricing often considered the most flexible marketing mix element?
Because it can be changed quickly to respond to market conditions. Example: Airlines frequently adjust ticket prices based on demand, seasonality, and competition (e.g., Ryanair, Delta).
What is cost-plus pricing?
Adding a standard markup to the cost of the product. Example: Supermarkets like Tesco and Carrefour use cost-plus pricing for private-label goods.
What does break-even pricing determine?
The price at which total revenues equal total costs, resulting in no profit or loss. Example: Startups like Peloton use break-even analysis to set subscription fees for hardware financing.
What is ‘price matching’?
Setting prices at the same level as competitors. Example: Amazon and Walmart frequently adjust prices to match competitors in online retail.
What is cost-plus pricing?
Adding a standard markup to the cost of the product.
Why is full-cost pricing beneficial for organizations?
It ensures all costs, both fixed and variable, are covered in the price.
Supermarkets like Tesco and Carrefour use cost-plus pricing for private-label goods.
What does break-even pricing determine?
The price at which total revenues equal total costs, resulting in no profit or loss.
How does break-even volume impact pricing strategies?
It helps firms assess whether expected sales volumes will cover costs at a given price.
Startups like Peloton initially use break-even analysis to set subscription fees for hardware financing.
What is ‘price matching’?
Setting prices at the same level as competitors.
What industry often uses competitive bidding?
Construction and government contracts.
What does market-led pricing focus on?
Customer demand and perceived value.
Why is perceived value pricing effective?
It allows firms to charge premium prices based on the customer’s view of the product’s worth.
Apple uses market-led pricing for its iPhones, emphasizing premium design and user experience.
What is the goal of a ‘build’ pricing strategy?
To increase market share by setting low prices.
How does a ‘hold’ pricing strategy differ from ‘build’?
It focuses on maintaining current market share and profit levels.
Netflix employed a ‘build’ strategy with low subscription costs to dominate the streaming market initially.
What industries commonly use dynamic pricing?
Airlines, hotels, and e-commerce platforms.
How does technology enable dynamic pricing?
By using algorithms to adjust prices in real time based on demand and supply.
Uber uses dynamic pricing to charge more during peak hours or high demand.
What is price elasticity of demand?
The degree to which demand changes in response to price changes.
When is demand considered elastic?
When a small price change causes a significant change in demand.
Starbucks adjusts coffee prices carefully due to elastic demand for luxury beverages.
What is penetration pricing?
Setting a low price to gain market share quickly.
What is price skimming?
Charging a high initial price and lowering it over time to attract different market segments.
Disney+ set low initial subscription fees to enter the streaming market. Sony uses price skimming for PlayStation consoles at launch.
What is psychological pricing?
Setting prices that appeal to emotions, like $9.99 instead of $10.
Why does odd-number pricing work?
Consumers perceive it as significantly cheaper than the next whole number.
McDonald’s sets prices like $4.99 for value meals to appear more affordable.
What is predatory pricing?
Setting extremely low prices to drive competitors out of the market.
Why is price discrimination controversial?
It involves charging different customers different prices for the same product.
Alleged predatory pricing cases have involved Amazon in various markets.
What is promotional pricing?
Temporarily lowering prices to attract customers.
Why do companies use geographical pricing?
To account for shipping costs or regional demand differences.
Coca-Cola adjusts prices for its products in different global markets.
What is price fixing?
An illegal agreement between competitors to set prices.
What is resale price maintenance?
A practice where manufacturers dictate minimum resale prices for retailers.
European Commission fined electronics companies like Philips for price fixing.
What is value-based pricing?
Setting prices based on the value customers perceive in the product.
Why is value-based pricing challenging?
It requires in-depth understanding of customer preferences.
Tesla uses value-based pricing for its electric vehicles, emphasizing innovation and environmental benefits.
What challenges arise in global pricing?
Exchange rate fluctuations, local competition, and varying customer expectations.
What is price standardization?
Setting a uniform price across all markets.
Apple implements global price standardization for iPhones but adjusts for VAT and tariffs.
How does big data improve pricing decisions?
By analyzing customer behavior and market trends.
What role does AI play in pricing strategies?
AI helps optimize prices in real time for maximum profitability.
Amazon uses AI-driven pricing algorithms to adjust product prices dynamically.
What is a quantity discount?
A price reduction for buying in bulk.
What is a trade allowance?
A discount offered to intermediaries for promoting or selling a product.
Costco offers bulk discounts on consumer goods.
How is pricing different in non-profit organizations?
It often focuses on cost recovery rather than profit generation.
Why do non-profits use pay-what-you-want pricing?
To make services accessible while encouraging donations.
Some museums like the Metropolitan Museum of Art use suggested donation pricing.
