Chapter 14: Pricing Strategies and Adjustments

🎯 What are the four main approaches to setting prices?

1️⃣ Demand-oriented 2️⃣ Cost-oriented 3️⃣ Profit-oriented 4️⃣ Competition-oriented

1️⃣ What is a demand-oriented pricing approach?

Setting price based on customer perception of value rather than on cost.

💡 Example: Luxury brands use high prices to signal prestige.

2️⃣ What is a cost-oriented pricing approach?

Price is determined by adding a markup to production cost.

💡 Example: Retailers adding 50% to wholesale cost for profit.

3️⃣ What is a profit-oriented pricing approach?

Setting price to achieve a specific return on investment or profit target.

💡 Example: A company prices a product to reach a 20% ROI goal.

4️⃣ What is a competition-oriented pricing approach?

Setting prices based on rival offerings, either matching or undercutting them.

💡 Example: Gas stations lowering prices to compete with nearby stations.

📈 What is price skimming?

Starting with a high initial price to recover costs and then lowering it over time.

💡 Example: Apple releasing new iPhones at premium prices before dropping them later.

💰 What is penetration pricing?

Setting a low initial price to attract many buyers and gain market share quickly.

💡 Example: Disney+ launching with low monthly rates to draw subscribers.

🎁 What is bundle pricing?

Combining multiple products for one total price, creating perceived savings. 💡Example: McDonald’s combo meals.

🧠 What is psychological pricing?

Using pricing cues to influence perception, such as $9.99 instead of $10.00.

💡 Example: Why does $19.99 seem cheaper than $20?

It triggers a left-digit bias, making it feel like a lower range.

🌍 What is dynamic pricing?

Flexible, algorithm-based pricing that changes based on demand or time.

💡 Example: Airlines adjusting fares depending on seat availability.

🤖 What is AI pricing?

Using algorithms and data analysis to predict customer behavior and optimize prices in real time.

🚫 What is price fixing?

When competitors agree on prices, which is illegal under U.S. antitrust laws.

🚫 What is price discrimination?

Charging different prices to different buyers for the same product without cost justification—illegal in many cases.

🚫 What is deceptive pricing?

Advertising a fake or inflated “discount” to mislead customers—prohibited under FTC rules.