Pricing

MKT 300 Exam 4

Price competition

Emphasizing price as an issue and matching or beating
competitors’ prices

what is required for price competition to be a successful
strategy

you need to be the low-cost seller of the product and Must be able to change prices rapidly and aggressively.

normal demand curve

raising prices leads to lower quantities sold

the demand curve for a prestige product

raising prices could lead to higher or lower
quantities sold

What is price elasticity of demand

a measure of the sensitivity of demand to changes in price

what price elasticity means to marketers

Marketers use it to understand how sensitive customers are to price changes and make better pricing decisions. it can determine whether increasing or decreasing prices will increase revenue, maintain customer demand, or cause customers to switch to competitors.

Inelastic demand

Customers are less sensitive to price changes. Even if the price increases, customers continue purchasing about the same amount.

What is the practical result of elastic versus inelastic demand when prices change?

• Elastic demand: A price increase causes a larger decrease in quantity demanded, potentially lowering total revenue. A price decrease can increase total revenue.

• Inelastic demand: A price increase causes a smaller decrease in quantity demanded, potentially increasing total revenue. A price decrease can lower total revenue.

What is markup as a pricing strategy?

the difference between the cost of a
good and its selling price

Why do grocery stores carry products with a negative markup (meaning that they lose money on the sale)?

to attract customers into the store and encourage them to purchase other products that generate a profit.

price-skimming

set a relatively high price at first and then lower it over time

penetration pricing

set a relatively low price to drive market share/value perceptions

differential pricing

when a company charges different prices for the same product or service to different customers or groups, depending on factors such as demand, location, timing, or customer characteristics.

Price Skimming is Most effective when:

• Customers are willing to pay a higher price.

• Demand is relatively inelastic among early buyers.

• The product is new, unique, or innovative.

• There is limited competition

Penetration Pricing is Most effective when:

• Customers are price-sensitive (elastic demand).

• There is strong competition.

• The company wants to attract customers quickly.

• The company wants to build market share and customer loyalty.

Differential Pricing is Most effective when:

• Different customer groups have different willingness to pay.

• The company can identify and separate customer groups.

• Customers are willing to pay different amounts.

• The company wants to increase revenue by reaching multiple market segments.

psychological pricing

Strategies that encourage purchases based on consumers’ emotional
responses, rather than on economically rational ones

Why Odd pricing works:

Customers tend to focus on the first number and perceive $9.99 as significantly cheaper than $10.

Why even pricing works:

Rounded prices can communicate quality, simplicity, and a premium image.

What is the current phenomenon of “shrinkflation”

when a company reduces the size, quantity, or amount of a product but keeps the price the same (or sometimes increases it).

why reducing volume in a package
seems to work better for marketers than raising prices

because customers are more likely to notice a price increase than a reduction in product size.

What is dynamic pricing

a
strategy where businesses adjust the prices of their offerings to account for changing demand.

Dynamic pricing is also known as…

all of the options are correct

what are the main factors that could make dynamic pricing effective for a given
business?

when demand changes frequently, supply is limited or flexible, customers have different willingness to pay, and the business can monitor and adjust prices quickly.