MM3 Pricing Strategy and Price Quotations

These flashcards cover key concepts related to pricing strategies, specifically skimming, penetration, and competitive pricing, as well as the importance and components of price quotations.

What is skimming pricing?

A strategy that involves initially setting a high price for a product to target customers willing to pay a premium, then gradually reducing the price to attract more price-sensitive customers.

When is skimming pricing commonly used?

It is commonly used for innovative products, luxury items, or new technologies.

What are the main objectives of skimming pricing?

Maximize early profits, recover research and development costs quickly, and establish a premium brand image.

Name a disadvantage of skimming pricing.

It may attract competitors to enter the market or consumers paying high prices may feel ripped off.

Give an example of a company that uses skimming pricing.

Apple, when launching new products like the iPhone and MacBook.

What is penetration pricing?

A strategy that involves setting a low initial price to gain market share quickly and attract a broad customer base.

What are the objectives of penetration pricing?

Establish a foothold in the market, encourage rapid adoption, and build brand loyalty.

What is a potential challenge of penetration pricing?

Initial profits may be low or negative and it can be difficult to raise prices later without customer backlash.

How does competitive pricing work?

It involves setting prices based on competitors’ pricing strategies to stay relevant in the market.

Give an example of an industry that commonly uses competitive pricing.

The airline industry, where companies adjust ticket prices based on competitors' rates.

What is the difference between skimming and penetration pricing regarding sales volume?

Skimming focuses on low initial sales volume for high profits, while penetration aims for high sales volume at lower profit margins.

What are the essential components of a price quotation?

Product description, pricing information, terms and conditions.

Why are price quotations important in business transactions?

They facilitate transparency, negotiation, and provide legal protection.

What does a firm price quotation signify?

It offers a fixed price that remains unchanged regardless of market fluctuations.

What constitutes a conditional price quotation?

It is subject to specific conditions such as quantity discounts or volume pricing.

What are the impacts of government regulations on price quotations?

They may increase the overall cost of production or procurement due to taxes and compliance requirements.

How should one prepare effective price quotations?

Gather necessary information, calculate total costs, clearly outline terms and review before issuing.

What defines an open price quotation?

It provides a range of prices based on market fluctuations and other variable factors.

What is the main focus of legal considerations in price quotations?

Ensuring accuracy, honesty, and compliance with relevant laws to protect both buyers and sellers.