Pricing Strategies

Question 1

cost-plus (mark-up) pricing

Answer 1

when firm adds a percentage/pre-determined amount of contribution to cost per unit to determine selling price

Question 2

loss-leader pricing

Answer 2

when firm sells a product below its cost-value and makes up for it through heavy advertisement or sales of complementary goods

Question 3

Penetration Pricing

Answer 3

when firm sets a low price to enter an industry and raises it once established in the market

Question 4

Predatory Pricing

Answer 4

when firm temporarily sets the price of their product so low that it drive people to switch brands and completely destroys sales of competitors

Question 5

Premium Pricing

Answer 5

when firm sets their price higher than their competitors due to established reputation of better quality products (usually price inelastic)

Question 6

Dynamic Pricing

Answer 6

when firm varies the pricing to reflect the changes in the market trends (high prices when demand is high and low prices when demand is low)

Question 7

Competitive Pricing

Answer 7

setting price at a similar level to competitors

below competition: highly competitive industry

same level as competition: focus on brand differentiation as competitive advantage

above competition: for ‘superior’ products

Question 8

Contribution Pricing

Answer 8

setting price based on direct costs of producing a product