1.3.3 Pricing Strategies

• What are pricing strategies used for?

  To set prices
• Penetration pricing involves setting a low initial price to enter a market
• Skimming involves setting a high price to maximise profits.
• What is competitive pricing based on?

  Competitors' prices
• Cost-plus pricing involves adding a markup to the cost of production
• Match the pricing strategy with its description:

  Penetration Pricing ↔️ Low initial price

  Skimming ↔️ High price for profit

  Competitive Pricing ↔️ Based on competitors

  Cost-plus Pricing ↔️ Markup on production cost
• What is the primary goal of cost-based pricing methods?

  Cover expenses and profit
• Cost-plus pricing adds a markup to the total production cost
• Break-even pricing aims to generate a specific profit level.

  False
• What is the formula for target profit pricing?

  $\frac{\text{Total Cost + Target Profit}}{\text{Number of Units Sold}}$
• Pricing methods are part of the marketing mix.
• What does cost-plus pricing involve adding to the total production cost?

  A markup
• Target profit pricing aims to achieve a specific profit level
• Match the pricing method with its description:

  Cost-plus ↔️ Adds a markup to total cost

  Break-even ↔️ Covers costs without profit

  Target profit ↔️ Aims for a specific profit
• What is penetration pricing designed to achieve when entering the market?

  Low initial price
• Skimming involves setting a high initial price
• What is competitive pricing aligned with?

  Competitors' rates
• Pricing strategies are part of the overall marketing mix.
• The break-even price formula includes fixed costs and variable costs divided by the number of units sold
• In cost-plus pricing, the markup is added to the total cost
• Market-based pricing methods focus on production costs.

  False
• Match the market-based pricing method with its example:

  Competitive pricing ↔️ £1.50 per litre of milk

  Premium pricing ↔️ £1000 for a new smartphone

  Value pricing ↔️ Subscription at £25/month
• Cost-based pricing ensures maximum revenue in a competitive market.

  False
• Order the steps in the process of using market-based pricing:

  1️⃣ Analyze market conditions

  2️⃣ Assess customer perception

  3️⃣ Choose a pricing strategy

  4️⃣ Set the price
• Market-based pricing determines prices based on market conditions and customer perception
• Premium pricing involves setting high prices for perceived value
• Value pricing balances cost and benefits to attract customers.
• Match the pricing approach with its basis for price determination:

  Cost-Based Pricing ↔️ Production costs

  Market-Based Pricing ↔️ Market conditions and customer perception
• Competitive pricing is a method used in market-based pricing.
• What is the selling price of a table if it costs £150 to produce and has a 30% markup?

  £195
• Penetration pricing involves setting a low initial price to attract customers.
• What is a drawback of penetration pricing?

  Lower profit margins
• Match the cost-based pricing method with its example:

  Cost-Plus Pricing ↔️ Furniture with 30% markup

  Break-Even Pricing ↔️ Printer selling books at £20

  Target Profit Pricing ↔️ Bakery aiming for £5,000 profit
• Break-even pricing sets prices to cover all costs without generating a profit.
• Cost-based pricing methods may not reflect market demand.
• What is the break-even price if fixed costs are £10,000, variable costs are £10 per unit, and 1,000 units are sold?

  £20
• Market-based pricing methods rely on market conditions and customer perceptions.
• What is the primary goal of competitive pricing in market-based pricing?

  Retain market share
• Match the market-based pricing method with its example:

  Competitive Pricing ↔️ Milk priced at £1.50 per litre

  Premium Pricing ↔️ Smartphone priced at £1000

  Value Pricing ↔️ Monthly subscription for £25
• Cost-based pricing sets prices based on production costs.