6 Pricing Strategy Free Online FlashCards

What role does price play in the marketing mix?

Price is what a customer gives up to obtain a product or service. In the marketing mix, it directly generates revenue, while product, promotion, and distribution create costs.

What does a pricing objective specify?

A pricing objective states what an organization wants its prices to accomplish, such as earning profit, increasing market share, reflecting customer value, or supporting survival.

How do customers assess an offering’s value?

Customers compare perceived benefits with the full costs of obtaining and using an offering. Costs can include money, time, effort, and risk.

What does price elasticity of demand measure?

Price elasticity of demand measures how strongly quantity demanded responds to a price change: $\text{elasticity} = \frac{\%\text{ change in quantity demanded}}{\%\text{ change in price}}$.

What is characteristic of elastic demand?

With elastic demand, a price change tends to cause a relatively large change in quantity demanded. Substitutes, budget importance, and time to adjust can affect elasticity.

How does cost-based pricing set an initial price?

Cost-based pricing starts with production and operating costs, then adds a markup or desired return. It is straightforward but may overlook customer willingness to pay or competitor offers.

What is the starting point for value-based pricing?

Value-based pricing starts with customers’ perceptions of benefits and the price they consider worthwhile. Research and offer testing can help estimate that value.

How does competition-based pricing guide a price?

Competition-based pricing uses competing products’ prices as a reference. A firm can price below, near, or above rivals while accounting for differences in features, service, brand, and experience.

How do fixed costs differ from variable costs?

Fixed costs do not vary with output in the short run; variable costs change as more units are produced or sold.

How are break-even units calculated?

Break-even units equal fixed costs divided by the unit price minus variable cost per unit: $\text{break-even units} = \frac{\text{fixed costs}}{\text{unit price} - \text{variable cost per unit}}$.

What is price skimming for a new product?

Price skimming launches a new product at a high price to serve buyers willing to pay more, then lowers the price over time.

What is the purpose of penetration pricing?

Penetration pricing starts a new product at a low price to encourage trial and build adoption.