40 Questions
What is the primary purpose of psychological pricing?
To take advantage of consumer perceptions
In what situation is 'Going Rate Pricing' most effective?
When there is a clear price leader who controls the game
What is the main reason behind using odd prices in psychological pricing?
Consumers perceive odd prices to be lower than even ones
Why might a company use 'Going Rate Pricing' strategy?
To maintain a consistent price regardless of competitors' actions
What pricing strategy involves selling a product at a higher price due to high perceived value?
Value Pricing
In which pricing strategy does a firm charge a low price, often equal to costs, to penetrate a new market and gain market share?
Penetration Pricing
What is the short-term high price strategy used to 'milk' the market for a period of popularity?
Skimming or Milking
Which pricing strategy involves reducing prices to remove or deter new entrants in a price-sensitive market?
Barrier Pricing
What pricing strategy involves pricing a product below cost, therefore selling it at a loss?
Loss Leading
Why might a firm use loss leading as a pricing strategy?
To attract customers for other products
In which strategy does a firm use a long-term high price due to high perceived value of the product?
Value Pricing
What pricing strategy involves reducing prices to remove or deter new entrants in a price-sensitive market?
Barrier Pricing
What is the strategy of using barrier pricing first to deter or remove competitors, and then increasing prices after cornering the market?
Destroyer/Predatory Pricing
What are the problems associated with loss leading as a pricing strategy?
All of the above
In which pricing strategy does a firm price a product below cost to attract customers for other products?
Loss Leading
What is the pricing strategy used to penetrate a new market and gain market share by charging a low price, often equal to costs?
Penetration Pricing
Which pricing strategy involves setting a long-term high price due to high perceived value of the product?
Value Pricing
In which pricing strategy does a firm use a short-term high price to 'milk' the market for a period of popularity?
Skimming or Milking
What is the strategy of using barrier pricing first to deter or remove competitors, and then increasing prices after cornering the market?
Destroyer/Predatory Pricing
In which pricing strategy does a firm price a product below cost to attract customers for other products?
Loss Leading
What pricing strategy involves reducing prices to remove or deter new entrants in a price-sensitive market?
Barrier Pricing
What is the pricing strategy used to penetrate a new market and gain market share by charging a low price, often equal to costs?
Penetration Pricing
What pricing strategy involves selling a product at a higher price due to high perceived value?
Value Pricing
What is the short-term high price strategy used to 'milk' the market for a period of popularity?
Skimming or Milking
In which pricing strategy does a firm charge a low price, often equal to costs, to penetrate a new market and gain market share?
Penetration Pricing
What pricing strategy involves pricing a product below cost, therefore selling it at a loss?
Loss Leading
What is the strategy of using barrier pricing first to deter or remove competitors, and then increasing prices after cornering the market?
Destroyer/Predatory Pricing
In which pricing strategy does a firm use a long-term high price due to high perceived value of the product?
Value Pricing
Which pricing strategy involves setting a long-term high price due to high perceived value of the product?
Value Pricing
What is the strategy of using barrier pricing first to deter or remove competitors, and then increasing prices after cornering the market?
Destroyer/Predatory Pricing
What pricing strategy involves selling a product at a higher price due to high perceived value?
Value Pricing
What is the pricing strategy used to penetrate a new market and gain market share by charging a low price, often equal to costs?
Penetration Pricing
What pricing strategy involves reducing prices to remove or deter new entrants in a price-sensitive market?
Barrier Pricing
In which pricing strategy does a firm use a short-term high price to 'milk' the market for a period of popularity?
Skimming or Milking
What is the primary purpose of psychological pricing?
To influence consumer perception and behavior
Why might a firm use loss leading as a pricing strategy?
To attract customers for other products by selling at a loss
What is the short-term high price strategy used to 'milk' the market for a period of popularity?
Skimming or Milking
What pricing strategy involves pricing a product below cost, therefore selling it at a loss?
Loss Leading
Why might a company use 'Going Rate Pricing' strategy?
To maintain price consistency in the industry
What pricing strategy involves reducing prices to remove or deter new entrants in a price-sensitive market?
Barrier Pricing
Study Notes
Psychological Pricing
- Primary purpose is to enhance perception of value and attract customers by creating the illusion of a lower price.
- Odd pricing strategy utilizes prices that end in .99 or .95 to make products appear cheaper than they are.
Going Rate Pricing
- Most effective in highly competitive markets where products are relatively undifferentiated.
- Companies may adopt this strategy to maintain market stability and avoid price wars.
High Perceived Value Pricing
- Involves selling products at a higher price due to the perceived value in customers' minds, often backed by branding or quality.
Market Penetration Pricing
- Firms charge low prices, often equal to costs, to penetrate new markets and gain market share, hoping to increase prices later once established.
Short-Term High Price Strategy
- Known as price skimming, aimed at 'milking' the market during a product's peak popularity or initial release.
Barrier Pricing
- Strategy where prices are initially set lower to deter new entrants, followed by price increases after achieving market control.
Loss Leading Strategy
- Pricing products below cost to attract customers for other items, effectively driving traffic to stores or services.
- Can sometimes lead to issues with profitability and perceived brand value.
Deter New Entrants Strategy
- Involves reducing prices to discourage new competitors from entering the market, maintaining dominance for established firms.
Problems with Loss Leading
- Risks include potential financial losses and difficulties in sustaining the business model if customers only purchase loss leaders.
Test your understanding of pricing strategies by tackling real-world case studies and applying the 7 pricing strategies. Assess your ability to consider factors influencing pricing and arrive at a strategic price for products.
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