Pricing Fundamentals
What is “price” in marketing terms?
The amount of money charged for a product or service
What is value-based pricing?
Pricing based on the buyer’s perception of value, not the seller’s cost
What is the difference between fixed and variable costs?
Fixed costs don’t change with production; variable costs do
What is product bundle pricing?
Selling several products together at a reduced price
What is segmented pricing?
Charging different prices to different customers for the same product
What are the 3 major pricing strategies?
Customer value-based, cost-based, and competition-based pricing
Define "good-value pricing."
Offering the right combination of quality and service at a fair price
What are total costs?
The sum of fixed and variable costs
What is product line pricing?
Setting price steps between products in a line
What is psychological pricing?
Using price to influence perception (e.g., $19.99 instead of $20)
Name 3 objectives for setting a price.
Profit maximization, market share growth, staying competitive
Define "everyday low pricing."
Charging a constant low price with few or no discounts.
What is cost-plus pricing?
Adding a standard markup to the cost of the product
What is market-skimming pricing?
Setting high initial prices to maximize revenue from early adopters
Name two promotional pricing strategies.
Limited-time offers, special-event pricing, cash rebates, extended warranties, free maintenance, low-interest financing
What are the 6 steps in the price-setting process?
1. Set objectives, 2. Determine costs,
3. Estimate demand, 4. Study competition,
5. Choose strategy, 6. Set price.
What is “value-added pricing”?
Attaching additional features/services to justify a higher price.
What is a benefit of cost-plus pricing?
It’s simple and ensures costs are covered
What is penetration pricing?
Setting low initial prices to quickly gain market share
Define price fixing.
Illegal agreement between competitors to set prices
Why is estimating demand important before setting a price?
It helps determine what customers are willing to pay and supports profit and market share goals
How is cost-based pricing different from value-based pricing?
Cost-based is product driven; value-based is customer driven.
What is break-even pricing?
Setting a price to cover costs or achieve a target return
What pricing tactic is used when demand is falling in the decline stage?
Cut prices to generate sales or clear inventory
What does the Robinson-Patman Act prohibit?
Price discrimination that gives unfair advantage to certain buyers