ch. 11 - Price

What is price?

The amount of money charged for a product.

What is cost-plus pricing?

Adding a profit margin to the cost of production.

Advantages of cost-plus pricing

Simple to calculate, guarantees profit on each unit.

Disadvantages of cost-plus pricing

Ignores competitor prices and customer demand.

What is competitive pricing?

Setting prices based on competitors’ prices.

What is penetration pricing?

Setting a low price to gain market share quickly.

Advantages of penetration pricing

Attracts customers quickly, increases sales volume.

Disadvantages of penetration pricing

Lower profit margins initially.

What is price skimming?

Setting a high price when launching a new product.

Advantages of price skimming

High profits per unit, recovers development costs quickly.

Disadvantages of price skimming

May attract competitors, fewer customers at high price.

What is promotional pricing?

Using temporary low prices to increase sales.

Factors affecting pricing decisions

Costs, competitors, demand, objectives.

How does price affect demand?

Higher prices usually reduce demand.