Pricing

Question 1

Define penetration pricing.

Answer 1

A marketing strategy used to attract customers to a new product or service by offering a lower price during its initial offering e.g. Netflix.

Question 2

Define skimming pricing.

Answer 2

Setting new product prices high and subsequently lowering them as competitors enter the market e.g. latest iPhone.

Question 3

Define cost plus pricing.

Answer 3

A fixed percentage is added on top of the cost it takes to produce one unit of a product (unit cost) e.g. £10 + 20% = £12.00 selling price, mainly used by retail companies.

Question 4

Define contribution.

Answer 4

Setting a price based on the variable cost of producing or buying a product with the aim of setting a price that generates a decent contribution towards fixed costs and profit.

Question 5

Define competitive pricing.

Answer 5

When you create a product price based on prices being offered by competitors.

Question 6

Define psychological pricing.

Answer 6

Employing various tactics, setting prices slightly below whole numbers or using specific pricing points to manipulate consumers cognitive biases, making them perceive a product as more affordable, attractive or valuable.

Question 7

Define predatory/destroyer pricing.

Answer 7

Involves a business setting a very low price in order to attract customers away from competitors who will struggle to match the low price and may fail.

Question 8

Define extension strategies.

Answer 8

Methods used by businesses to extend the life of a product or service typically used when a product reaches the maturity stage of its life cycle and sales begin to decline.