4.5.3 - 4.5.4 - Flashcards on Pricing Strategies and Methods

These flashcards cover key concepts related to various pricing strategies and their implications in business management.

What is cost-plus (mark-up) pricing?

It involves calculating the average cost per unit and adding a percentage mark-up.

What is penetration pricing?

It involves initially selling products at a low price to gain market share and then raising prices later.

What is the purpose of loss leader pricing?

To attract customers into the store to buy more products and/or recoup the loss by selling complementary products.

What does predatory pricing aim to achieve?

To temporarily reduce prices to drive competitors out of the market.

Why is premium pricing used?

To set prices significantly higher than competitors due to higher quality or uniqueness of a product.

What is dynamic pricing?

Varying the price of a good or service based on changing market demand.

What is competitive pricing?

Setting the price of goods or services at the same or similar levels as competitors.

What is contribution pricing?

Setting a price based on the direct costs of producing a product and calculating the contribution to fixed costs.

How does price elasticity of demand (PED) affect pricing strategies?

It measures demand responsiveness to price changes and helps predict how sales revenue will react to price adjustments.

What types of products are considered to have inelastic price elasticity of demand?

Necessities, products with few substitutes, and addictive products.

How can firms with inelastic PED increase sales revenue?

By raising the selling price, but they must monitor the ethical implications and potential reputational damage.