Podcast
Questions and Answers
What is an example of an adjustment that a manager might make to set a final price?
What is an example of an adjustment that a manager might make to set a final price?
Which pricing practice involves charging different customers different prices for the same product?
Which pricing practice involves charging different customers different prices for the same product?
What is the formula to calculate Total Revenue?
What is the formula to calculate Total Revenue?
Which term describes the situation where companies collaborate to set high prices instead of letting the market dictate the prices?
Which term describes the situation where companies collaborate to set high prices instead of letting the market dictate the prices?
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What does the Markup formula specifically indicate?
What does the Markup formula specifically indicate?
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What pricing strategy involves setting an initially high price and gradually lowering it over time?
What pricing strategy involves setting an initially high price and gradually lowering it over time?
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Which pricing method is based on the company’s costs?
Which pricing method is based on the company’s costs?
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What is the main objective of penetration pricing?
What is the main objective of penetration pricing?
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What does price discrimination refer to?
What does price discrimination refer to?
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Which of the following terms describes a pricing strategy where retailers entice customers with low prices on select items?
Which of the following terms describes a pricing strategy where retailers entice customers with low prices on select items?
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Which pricing strategy aims to prevent competitors from gaining market share by setting prices low?
Which pricing strategy aims to prevent competitors from gaining market share by setting prices low?
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What is the primary feature of ‘Every Day Low Prices’ (EDLP)?
What is the primary feature of ‘Every Day Low Prices’ (EDLP)?
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Which of the following best describes performance-based pricing?
Which of the following best describes performance-based pricing?
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What characterizes static prices?
What characterizes static prices?
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What is the role of the Manufacturer’s Suggested Retail Price (MSRP)?
What is the role of the Manufacturer’s Suggested Retail Price (MSRP)?
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What does price most objectively assess regarding a product?
What does price most objectively assess regarding a product?
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Which of the following statements about reference prices is true?
Which of the following statements about reference prices is true?
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What is a primary characteristic of variable costs?
What is a primary characteristic of variable costs?
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In which market types is price generally more influential on demand?
In which market types is price generally more influential on demand?
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A penetration pricing strategy aims to:
A penetration pricing strategy aims to:
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What must a company ensure when using a skimming pricing strategy?
What must a company ensure when using a skimming pricing strategy?
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Which pricing strategy requires constant monitoring of customer perceptions?
Which pricing strategy requires constant monitoring of customer perceptions?
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What is a potential disadvantage of cost-based pricing?
What is a potential disadvantage of cost-based pricing?
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What typically happens when competitors engage in a price war?
What typically happens when competitors engage in a price war?
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How does price presentation affect customer perceptions?
How does price presentation affect customer perceptions?
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Why is understanding perceived costs crucial for marketers?
Why is understanding perceived costs crucial for marketers?
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What factor influences pricing strategy during a product's life cycle?
What factor influences pricing strategy during a product's life cycle?
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What impact do internal costs have on a company’s pricing decisions?
What impact do internal costs have on a company’s pricing decisions?
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When is price most sensitive to changes?
When is price most sensitive to changes?
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What are fixed costs?
What are fixed costs?
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Which formula correctly calculates total costs?
Which formula correctly calculates total costs?
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What does the contribution margin indicate?
What does the contribution margin indicate?
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What is a breakeven volume?
What is a breakeven volume?
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Which pricing strategy involves initially setting a high price for a new product?
Which pricing strategy involves initially setting a high price for a new product?
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What is expected unit sales also referred to as?
What is expected unit sales also referred to as?
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What do variable costs include?
What do variable costs include?
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Which of the following reflects a marketing strategy's risk?
Which of the following reflects a marketing strategy's risk?
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How is profit calculated?
How is profit calculated?
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What is markup in pricing terms?
What is markup in pricing terms?
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What is the first step in the price-setting process?
What is the first step in the price-setting process?
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Which factor influences price setting the most according to customer behavior?
Which factor influences price setting the most according to customer behavior?
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What is an example of a cost-based pricing approach?
What is an example of a cost-based pricing approach?
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What happens when the price of an elastic good is raised?
What happens when the price of an elastic good is raised?
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What is the main purpose of prestige pricing?
What is the main purpose of prestige pricing?
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Which pricing model adjusts its prices based on customer demand?
Which pricing model adjusts its prices based on customer demand?
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Which pricing strategy charges a fixed fee for a predetermined period in exchange for services?
Which pricing strategy charges a fixed fee for a predetermined period in exchange for services?
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What do loss-leader pricing strategies primarily aim to accomplish?
What do loss-leader pricing strategies primarily aim to accomplish?
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Which pricing strategy is often associated with offering different pricing options based on usage or quantity purchased?
Which pricing strategy is often associated with offering different pricing options based on usage or quantity purchased?
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What is a common disadvantage of using prestige pricing?
What is a common disadvantage of using prestige pricing?
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What is the primary focus of value-based pricing?
What is the primary focus of value-based pricing?
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What distinguishes microtransactions from traditional transactions?
What distinguishes microtransactions from traditional transactions?
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Which of the following is NOT a common adjustment in price-setting?
Which of the following is NOT a common adjustment in price-setting?
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What is the primary goal of setting pricing objectives?
What is the primary goal of setting pricing objectives?
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What is the primary characteristic of flat-rate pricing?
What is the primary characteristic of flat-rate pricing?
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Which type of pricing is likely to be implemented in a subscription model?
Which type of pricing is likely to be implemented in a subscription model?
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What is an essential aspect to estimate when setting prices?
What is an essential aspect to estimate when setting prices?
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Which pricing strategy aims to charge based on results achieved by the product or service?
Which pricing strategy aims to charge based on results achieved by the product or service?
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What happens to the price per unit as volume increases up to a certain point?
What happens to the price per unit as volume increases up to a certain point?
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If you have fixed expenses of $558,000, what is the variable cost per unit if you sell 400 units?
If you have fixed expenses of $558,000, what is the variable cost per unit if you sell 400 units?
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What price did customers indicate was appropriate for the product?
What price did customers indicate was appropriate for the product?
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What discount percentage was suggested to attract new customers?
What discount percentage was suggested to attract new customers?
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Which practice is illegal when one company sets prices extremely low to run competitors out of business?
Which practice is illegal when one company sets prices extremely low to run competitors out of business?
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What is the main objective of analyzing competitors’ prices and value propositions?
What is the main objective of analyzing competitors’ prices and value propositions?
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Which of the following is NOT a common adjustment made to base prices?
Which of the following is NOT a common adjustment made to base prices?
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What could be a result of a company engaging in price-fixing?
What could be a result of a company engaging in price-fixing?
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What is a possible consequence of using comparison prices improperly?
What is a possible consequence of using comparison prices improperly?
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What should be the first step in setting a price according to the outlined steps?
What should be the first step in setting a price according to the outlined steps?
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Which act prevents companies from engaging in price discrimination?
Which act prevents companies from engaging in price discrimination?
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Why is the concept of 'price thresholds' important in setting prices?
Why is the concept of 'price thresholds' important in setting prices?
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What could be an effective way to shift demand during slower sales periods?
What could be an effective way to shift demand during slower sales periods?
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What type of pricing involves offering different services at the same price to different buyers?
What type of pricing involves offering different services at the same price to different buyers?
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Study Notes
Price and Customer Cost Perceptions
- Price is the monetary commitment from the customer, reflecting product value.
- Customers consider both monetary and non-monetary costs when evaluating value.
- Price represents relative value for both buyer and seller; acceptable price is crucial for exchange.
- Price is linked to total perceived costs for the buyer, including monetary and nonmonetary aspects of purchase and use.
- Seller's price must cover production costs plus other business-related expenses.
Influences on Price Setting
- Customer Perception: Reference price (expected price) strongly influences value perceptions. Presentation of price (e.g., $3.99 vs. $4.00) can influence perception.
- Internal Costs: Variable costs (change with quantity sold) and fixed costs (don't change) should be considered. Variable costs are linked directly to production/sales. Fixed costs, are independent of sales e.g., salaries, advertising, rent.
- Market Characteristics: Price sensitivity varies by market. Certain markets (e.g., jewelry, vacations) are more price-sensitive than others. Stage of product life cycle affects pricing (e.g., higher prices during introduction).
- Competition: Competitors' prices are a major factor, with the risk of price wars resulting when competitors react to price drops with further reductions that can harm all.
Pricing Strategies
- New Products: Skimming strategy (initially high price, gradual drops) is suitable when the product is significantly better than existing options, there is little initial competition, and the product has significant value. Penetration strategy (low initial price) is effective when facing immediate competition, offers lower costs, and aims for mass-market appeal.
- Existing Products: Cost-based pricing (sets price based on costs) is straightforward but doesn't factor in customer willingness to pay. Value-based pricing (sets price based on customer willingness to pay) aims for maximum profit but requires understanding customer value. Prestige pricing sets high prices to enhance brand image.
- Static vs. Dynamic Pricing: Static prices (fixed prices) provide consistency and lessen price comparison shopping. Dynamic pricing adjusts price based on competition and demand. High-low pricing involves temporary low prices and subsequent price increases. Loss-leader pricing uses dramatically reduced prices on specific items to attract customers who are likely to make additional purchases. Price lining is considering how one product's price might influence others.
- Microtransactions: A business model for purchasing virtual goods or services within a platform using micropayments.
- Service Pricing: Hourly, flat-rate, retainer-based, tiered, freemium, subscription, and performance-based pricing models are common.
Price-Setting Steps
- Step 1: Set Pricing Objectives (e.g., sales goals, profit goals, image-building).
- Step 2: Estimate Demand and Revenue (assess market potential and your product's projected demand).
- Step 3: Determine Cost, Volume, and Profit Relationships (analyse variable costs, fixed costs and their relationship to different levels of production/sales).
- Step 4: Analyze Competitors' Prices, Offers, and Value Propositions (research competitors' pricing and value propositions).
- Step 5: Set Initial Base Price (determine an initial price based on Steps 1-4, testing with customers).
- Step 6: Adjust to Set Final Price (adjust the base price by factoring in market conditions, discounts, and other promotional offers).
Legal Issues Related to Pricing
- Protecting Competitors: Laws like the Sherman Act and the Federal Trade Commission Act protect smaller companies from predatory pricing (setting extremely low prices to drive competitors out of business).
- Protecting Customers: Robinson-Patman Act and similar legislation deter price discrimination (charging different customers different prices for the same product) and price-fixing/collusion(companies agree to control prices rather than set them based on market conditions). Bait-and-switch is illegal. Comparison prices must be accurate.
Pricing Calculations
- Fixed Costs: Costs independent of production/sales
- Variable Costs: Costs directly related to production/sales
- Breakeven point: When total revenue equals total costs
- Key calculation formulas exist for profit, unit contribution, contribution margin, markup, breakeven volume, and breakeven sale.
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Description
This quiz covers essential concepts in pricing strategies, including adjustments managers might make to set final prices and the implications of different pricing practices. Topics include total revenue calculation, markup formulas, and collaborative pricing practices. Enhance your understanding of the strategies used in pricing and revenue generation.