Types of pricing strategies

Question 1

What are the 8 pricing strategies

Answer 1

Full- cost pricing 
Contribution pricing 
Competitor pricing 
Price discrimination
Mark up pricing 
Dynamic pricing 
Penetration pricing 
Marketing skimming

Question 2

Mark up pricing definition

Answer 2

adding a fixed mark-up for profit to the unit price of a product.

Question 3

Target pricing definition

Answer 3

setting a price that will give a required rate of return at a certain level of output/sales.

Question 4

Full cost pricing definition

Answer 4

setting a price by calculating a unit cost for the product (allocated fixed and variable costs) and then adding a fixed profit margin

Question 5

Contribution cost pricing

Answer 5

setting prices based on the variable costs of making a product in order to make a contribution towards fixed costs and profit.

Question 6

Competition based pricing

Answer 6

a firm will base its price upon the price set by its competitors

Question 7

Dynamic pricing definition

Answer 7

offering goods at a price that changes according to the level of demand and the customer’s ability to pay

Question 8

Penetration pricing definition

Answer 8

setting a relatively low price often supported by strong promotion in order to achieve a high volume of sales

Question 9

Market skimming definition

Answer 9

setting a high price for a new product when a firm has a unique or highly differentiated product with low price elasticity of demand

Question 10

Pros of full cost pricing

Answer 10

Covers all costs
Easy to calculate for single product firms
Suitable to price makers

Question 11

Cons of full cost pricing

Answer 11

Inaccurate for firms with 1+ products
Doesn’t account for market or competition conditions
Inflexible
If sales fall average costs fall price increases (spiral effect)

Question 12

Pros of contribution pricing

Answer 12

Variable costs will be covered by the price and a contribution made to fixed costs
Suitable with firms with 3+ products
Flexible

Question 13

Cons of contributing pricing

Answer 13

Fixed costs may not be covered

If prices vary too much customers can be annoyed

Question 14

Pros of competitor pricing

Answer 14

almost essential for firms with little market
power – price-takers
flexible to market and competitive conditions

Question 15

Cons of competitor pricings

Answer 15

price set may not cover all of the costs of
production
may have to vary price frequently due to
changing market and competitive conditions

Question 16

Pros of price discrimination

Answer 16

uses price elasticity knowledge to charge
different prices in order to increase total
revenue