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Theme 1: Marketing and People
1.3 Marketing Mix and Strategy
1.3.3 Pricing Strategies
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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?
Total Cost + Target Profit
Number of Units Sold
\frac{\text{Total Cost + Target Profit}}{\text{Number of Units Sold}}
Number of Units Sold
Total Cost + Target Profit
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
.
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