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What is a primary reason firms utilize new product pricing strategies?
What is a primary reason firms utilize new product pricing strategies?
Which pricing strategy involves charging a high price initially and lowering it later?
Which pricing strategy involves charging a high price initially and lowering it later?
What characteristic describes demand for a highly desirable product during its introductory stage?
What characteristic describes demand for a highly desirable product during its introductory stage?
What is the main goal of a penetration pricing strategy?
What is the main goal of a penetration pricing strategy?
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What strategy might a firm employ once rival products enter the market?
What strategy might a firm employ once rival products enter the market?
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What is trial pricing primarily used for?
What is trial pricing primarily used for?
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What is a common pricing strategy for firms focused on profit objectives when launching new products?
What is a common pricing strategy for firms focused on profit objectives when launching new products?
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Which scenario would most likely lead a firm to implement a skimming pricing strategy?
Which scenario would most likely lead a firm to implement a skimming pricing strategy?
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Which factor is NOT typically associated with trial pricing?
Which factor is NOT typically associated with trial pricing?
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Why do firms prefer price inelastic demand during a product's early stage?
Why do firms prefer price inelastic demand during a product's early stage?
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In which situation is a skimming pricing strategy most effective?
In which situation is a skimming pricing strategy most effective?
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What might be the purpose of using digital wallets in transactions?
What might be the purpose of using digital wallets in transactions?
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What is a potential drawback of using a penetration pricing strategy?
What is a potential drawback of using a penetration pricing strategy?
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What influence does having unique benefits have on a product's demand?
What influence does having unique benefits have on a product's demand?
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How do firms typically respond to changes in consumer demand for a product that is new and desirable?
How do firms typically respond to changes in consumer demand for a product that is new and desirable?
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What is a potential downside of maintaining a high price during the introduction of a product?
What is a potential downside of maintaining a high price during the introduction of a product?
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What is the starting point for successful price planning?
What is the starting point for successful price planning?
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Which of the following pricing methods primarily considers the cost of production?
Which of the following pricing methods primarily considers the cost of production?
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What is NOT a factor that should be considered during price planning?
What is NOT a factor that should be considered during price planning?
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Which pricing strategy involves setting prices based on the number of units demanded?
Which pricing strategy involves setting prices based on the number of units demanded?
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What is a significant drawback of cost-based pricing methods?
What is a significant drawback of cost-based pricing methods?
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What does target costing aim to do as part of pricing strategy?
What does target costing aim to do as part of pricing strategy?
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Which of the following best describes a two-part pricing strategy?
Which of the following best describes a two-part pricing strategy?
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Which of the following factors can change rapidly, affecting pricing strategies?
Which of the following factors can change rapidly, affecting pricing strategies?
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What does the term 'cross-elasticity of demand' refer to?
What does the term 'cross-elasticity of demand' refer to?
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How does an increase in the price of one substitute product typically affect the demand for another substitute?
How does an increase in the price of one substitute product typically affect the demand for another substitute?
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What is price segmentation?
What is price segmentation?
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Why might the best price for a product differ among market segments?
Why might the best price for a product differ among market segments?
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What happens when substitutes have a strong cross-elasticity of demand?
What happens when substitutes have a strong cross-elasticity of demand?
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What is a potential consequence of increasing the price of a product too much?
What is a potential consequence of increasing the price of a product too much?
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In a freemium business strategy, what is provided free of charge?
In a freemium business strategy, what is provided free of charge?
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Which scenario can lead to consumer perception of a product becoming less desirable?
Which scenario can lead to consumer perception of a product becoming less desirable?
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What kind of products are categorized as fads?
What kind of products are categorized as fads?
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What role do wallets primarily serve in financial transactions?
What role do wallets primarily serve in financial transactions?
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What is a common method marketers use to gauge consumer demand at different price points?
What is a common method marketers use to gauge consumer demand at different price points?
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Which of the following statements about congestion zones is accurate?
Which of the following statements about congestion zones is accurate?
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What is a mobile wallet?
What is a mobile wallet?
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How do store brands typically reflect their pricing strategy compared to national brands?
How do store brands typically reflect their pricing strategy compared to national brands?
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How does penetration pricing differ from skimming pricing?
How does penetration pricing differ from skimming pricing?
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What does the backward-bending supply curve indicate in terms of pricing?
What does the backward-bending supply curve indicate in terms of pricing?
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What factors influence the success of pricing strategies like skimming pricing?
What factors influence the success of pricing strategies like skimming pricing?
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What advantage do digital wallets provide in developing nations?
What advantage do digital wallets provide in developing nations?
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What is typically required for competitors to produce a rival product in highly complex technical markets?
What is typically required for competitors to produce a rival product in highly complex technical markets?
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Which of the following statements about digital wallets is correct?
Which of the following statements about digital wallets is correct?
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What is a likely obstacle for companies using skimming pricing?
What is a likely obstacle for companies using skimming pricing?
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What does the EDLP policy allow large retail chains to achieve with their suppliers?
What does the EDLP policy allow large retail chains to achieve with their suppliers?
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Which of the following retail chains mentioned is known to adopt a deliberate EDLP policy?
Which of the following retail chains mentioned is known to adopt a deliberate EDLP policy?
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How do large retail firms benefit from adopting cost efficiencies?
How do large retail firms benefit from adopting cost efficiencies?
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What is the primary outcome of the cost efficiencies demanded by large retail chains from suppliers?
What is the primary outcome of the cost efficiencies demanded by large retail chains from suppliers?
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What effect does the EDLP strategy have on consumer perception in large retail chains?
What effect does the EDLP strategy have on consumer perception in large retail chains?
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How does an increase in the price of one complement affect the demand for another product?
How does an increase in the price of one complement affect the demand for another product?
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What is an example of segmenting pricing based on age?
What is an example of segmenting pricing based on age?
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What does segmenting on quantity refer to in pricing?
What does segmenting on quantity refer to in pricing?
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What is the main purpose of estimating demand in product pricing?
What is the main purpose of estimating demand in product pricing?
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What is primarily considered the assignment of value in a pricing context?
What is primarily considered the assignment of value in a pricing context?
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Which of the following is NOT an element of price planning?
Which of the following is NOT an element of price planning?
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What is a common feature of layaway programs as mentioned in the context?
What is a common feature of layaway programs as mentioned in the context?
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In the context of Buffet pricing, what does the term 'adult buffet price' indicate?
In the context of Buffet pricing, what does the term 'adult buffet price' indicate?
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What does the concept of opportunity cost refer to?
What does the concept of opportunity cost refer to?
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What aspect should be considered when analyzing the impact of pricing on demand?
What aspect should be considered when analyzing the impact of pricing on demand?
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Bartering involves which of the following methods of payment?
Bartering involves which of the following methods of payment?
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Which pricing strategy might be influenced by the demand estimation of consumer behavior?
Which pricing strategy might be influenced by the demand estimation of consumer behavior?
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Which factor is essential for marketers to consider when estimating demand?
Which factor is essential for marketers to consider when estimating demand?
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What role does technology play in pricing strategies?
What role does technology play in pricing strategies?
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Which of the following is a common form of value exchange in bartering?
Which of the following is a common form of value exchange in bartering?
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What is a crucial first step in successful price planning?
What is a crucial first step in successful price planning?
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What is the primary purpose of yield management pricing in hospitality businesses?
What is the primary purpose of yield management pricing in hospitality businesses?
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How does price elasticity of demand relate to customer behavior?
How does price elasticity of demand relate to customer behavior?
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Which factor most influences the effectiveness of yield management pricing?
Which factor most influences the effectiveness of yield management pricing?
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Why do some customers pay top dollar while others seek discounts?
Why do some customers pay top dollar while others seek discounts?
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What is the main goal of businesses using yield management pricing?
What is the main goal of businesses using yield management pricing?
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In what way do Bitcoin and other digital wallets relate to demand-based pricing?
In what way do Bitcoin and other digital wallets relate to demand-based pricing?
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What does the concept of price elasticity of demand help businesses understand?
What does the concept of price elasticity of demand help businesses understand?
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What characteristic differentiates customers in terms of yield management pricing?
What characteristic differentiates customers in terms of yield management pricing?
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What is the primary purpose of a mobile wallet in financial transactions?
What is the primary purpose of a mobile wallet in financial transactions?
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What characteristic differentiates penetration pricing from skimming pricing?
What characteristic differentiates penetration pricing from skimming pricing?
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Which of the following is a potential drawback of skimming pricing?
Which of the following is a potential drawback of skimming pricing?
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What is a significant factor influencing the implementation of penetration pricing?
What is a significant factor influencing the implementation of penetration pricing?
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What advantage do digital wallets provide specifically in developing nations?
What advantage do digital wallets provide specifically in developing nations?
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In what way does penetration pricing differ from trial pricing?
In what way does penetration pricing differ from trial pricing?
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What must competitors consider when attempting to create a rival product in highly complex markets?
What must competitors consider when attempting to create a rival product in highly complex markets?
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Which option correctly contrasts penetration pricing with skimming pricing?
Which option correctly contrasts penetration pricing with skimming pricing?
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What is the primary function of a reverse auction for firms?
What is the primary function of a reverse auction for firms?
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What method do marketers typically use when calculating cost-plus pricing?
What method do marketers typically use when calculating cost-plus pricing?
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What kind of pricing strategy often leads restaurants to markup food items significantly?
What kind of pricing strategy often leads restaurants to markup food items significantly?
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What psychological pricing strategy involves using prices ending in specific digits to influence customer perception?
What psychological pricing strategy involves using prices ending in specific digits to influence customer perception?
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What is an example of price-quality interference that firms should be cautious of?
What is an example of price-quality interference that firms should be cautious of?
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How do firms typically decide on their pricing objectives?
How do firms typically decide on their pricing objectives?
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Which pricing strategy is more likely to attract a large customer base quickly?
Which pricing strategy is more likely to attract a large customer base quickly?
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Which ethical consideration should firms be aware of in B2B pricing?
Which ethical consideration should firms be aware of in B2B pricing?
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Study Notes
Pricing Strategies
- Price: The assigned value of a product or service, representing the exchange required for acquisition. This can include money, goods, services, or other valuable items. Opportunity costs should also be considered.
Price Planning
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Steps:
- Establish pricing objectives (e.g., maximizing profit, increasing market share).
- Estimate demand (understanding how much consumers will buy at different prices).
- Determine costs (variable and fixed).
- Analyze the pricing environment (economic conditions, competition, consumer trends, government regulations).
- Choose a pricing strategy (cost-based, demand-based, competition-based, customer-needs based).
Pricing Objectives
- Profit Objectives: Focus on desired profit growth or net profit margin. This is important for attracting investment.
- Sales or Market Share Objectives: Aim to maximize sales volume or increase market share. Market share is the percentage of a market represented by a firm's sales. Lowering prices isn't always necessary to increase market share – a product's competitive advantage can also contribute.
- Competitive Effect Objectives: Strategies aim to reduce the impact of competitor actions (e.g., match pricing, respond to competitor discounting).
- Customer Satisfaction Objectives: Prioritizing customers' needs may drive long-term profit by attracting loyal customers.
- Image Enhancement Objectives: High prices can improve product image, particularly for luxury brands to appeal to status-conscious consumers.
Estimating Demand
- Demand: The quantity of a product or service that consumers are willing and able to buy at a particular price. It typically changes with price changes.
- Demand Curves: Illustrate the relationship between price and quantity demanded (quantity falls as price increases). Demand curves can slope downward (typical) or upward (e.g., for luxury goods). A shift in demand (increase or decrease) can occur with external factors (e.g., new competitors, changing consumer preferences).
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Price Elasticity of Demand: Measures how demand changes in response to price changes.
- Elastic Demand: Significant change in quantity demanded relative to price change.
- Inelastic Demand: Little change in quantity demanded relative to a price change.
- Cross-Elasticity of Demand: How demand for one product is influenced by changes in the price of a related product (substitutes or complements).
- Estimating Demand: Marketers use various methods to predict sales: identifying target markets and estimating their average purchase amounts.
Determining Costs
- Variable Costs: Per-unit costs that fluctuate based on production volume.
- Fixed Costs: Costs that remain constant regardless of production volume (e.g., rent, salaries).
- Total Costs: Sum of fixed and variable costs.
- Average Fixed Cost: Fixed cost per unit (decreases as production increases).
- Average Variable Cost: Variable cost per unit.
- Average Total Cost: Sum of average fixed and average variable costs.
Pricing Strategies
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Cost-Based Pricing: Setting prices based on costs of production and marketing.
- Cost-Plus Pricing: Adds a markup to the total cost to cover expenses and achieve desired profit margin.
- Keystone Pricing: Doubling the cost of a product; common in retailing.
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Demand-Based Pricing: Sets prices based on consumer-perceived value and willingness-to-pay.
- Target Costing: Determining the acceptable production costs to achieve a desired price.
- Yield Management Pricing: Adjusting price based on capacity, demand, and customer characteristics (popular in hospitality).
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Competition-Based Pricing: Setting prices near, above, or below the competition's prices.
- Price Leadership: Dominating firms can agree on pricing to avoid price wars.
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Customer-Needs Based Pricing: Focusing on consumers' needs for high quality, durability, and value at reasonable prices.
- EDLP (Everyday Low Pricing): Guarantees consistent low prices to offer value and perceived savings.
- High/Low Pricing: Higher prices with frequent promotions to tempt consumers to purchase goods.
New Product Pricing
- Skimming Pricing: High initial price to recoup development costs then lower the price over time.
- Penetration Pricing: Initial low price to quickly gain market share.
- Trial Pricing: Low price for a limited time to generate interest.
Price Segmentation
- Price Segmentation: Charging different prices to different segments (based on factors like age, quantity, location, or product features).
- Example: Different buffet prices for adults and children, or quantity product discounts.
Pricing Tactics
- Two-Part Pricing: Two separate payments required for a product (e.g., golf clubs with yearly/monthly fees + per round fees).
- Payment Pricing: Breaking down total price into smaller amounts payable over time (e.g., infomercials).
- Decoy Pricing: Offering at least three similar products where two are higher-priced and less attractive than the third, encouraging buyers to choose the higher-priced alternative.
- Price Bundling: Multiple goods or services sold as a package at a price less than the individual items.
- Captive Pricing: Pricing a low-cost product to entice a customer to buy higher priced items that are required with it.
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Distribution-Based Pricing: Adjusting prices based on delivery costs and location.
- F.O.B. (Free On Board) Pricing: Buyer is responsible for shipping.
- Uniform Delivered Pricing: Adds a constant shipping cost to the base price.
- Freight Absorption Pricing: Seller absorbs some or all the shipping cost (common in competitive markets).
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Discounting for channel members: Offering special pricing (trade, quantity, cash, seasonal) to retailers and wholesalers.
- Trade Discounts: Percentage discounts off list prices.
- Quantity Discounts: Reduced prices for larger orders.
- Cash Discounts: Incentives for prompt payment.
- Seasonal Discounts: Price reductions during off-seasons or to attract customers during specific time periods.
Pricing Environment
- Economic Environment: Upswings, downturns, inflation, recessions, economic growth, and consumer confidence in the economy affect pricing strategies.
- Competition: Anticipating how competitors react to pricing changes, using competitor pricing as a guide and understanding industry structure (oligopoly, monopolistic competition, pure competition).
- Consumer Trends: Cultural, demographic factors, and evolving consumer preferences affect perception of acceptable prices (e.g., the sharing economy, saving time, emphasis on value).
- Government Regulation: Regulations (e.g., healthcare, environmental, laws specific to industries, consumer protection acts) influence production costs and impose restrictions on price adjustments. Local government regulation may dictate prices for specific products or services in certain areas.
Legal and Ethical Considerations
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Deceptive Pricing Practices: Avoid claims that are false or misleading.
- Bait-and-Switch: Offering a low-price product as bait (and then promoting a higher-priced one).
- Loss-Leader Pricing: Selling items below cost to drive traffic; sometimes regulated by state unfair sales acts..
- Price Discrimination: Charging different prices to different customers without justification (usually illegal).
- Price Gouging: Raising prices excessively in times of emergency or scarcity. Usually illegal depending on the goods/services and location.
- Vertical Price Fixing: Manufacturers forcing retailers to charge a specific/agreed-upon price (often illegal).
- Predatory Pricing: Setting very low prices to drive out competitors, then raising prices. Usually illegal.
- Analyzing the pricing environment, considering potential regulatory constraints and price wars is important for successful pricing strategies.
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Description
This quiz explores various pricing strategies used by firms when launching new products. It covers concepts like skimming pricing, penetration pricing, and trial pricing, along with their goals and effectiveness. Test your knowledge on how these strategies influence market demand and competition.
