price

• What is the market mechanism?

  The interaction of supply and demand that sets the price of products and determines the quantity supplied.
• What is a price taker?

  A business that must accept the market price set by supply and demand.
• Under what market condition do businesses become price takers?

  Under perfect competition.
• What are the characteristics of perfect competition?

  Goods are undifferentiated, there are many producers, and buyers have complete information.
• What is the difference between price takers and price makers?

  Price takers accept market prices, while price makers can set their own prices using strategies.
• What are the two broad groups of pricing strategies?

  1. Market-orientated strategies

  • Set prices based on market demand.

  2. Cost-based strategies

  • Set prices based on production costs.
• What is market skimming?

  Charging a high price to maximize profits on a new product for a limited time.
• What is an example of a product that might use market skimming?


  The latest generation of iPhones when first released.
• What is market penetration pricing?

  Setting a low price to encourage large purchases and gain market share.
• What is going rate pricing?

  Setting prices in line with competitors' prices.
• What is psychological pricing?

  Setting prices to match consumer expectations and perceived value.
• What is loss leader pricing?

  Selling products at a loss to attract customers and generate additional sales.
• What is destroyer pricing?

  Setting prices low enough to drive competitors out of the market.
• What are the three main types of cost-based pricing strategies?

  1. Cost plus pricing

  • Adding a profit percentage to the average cost.

  2. Full cost pricing

  • Considering all costs, including overheads.

  3. Contribution pricing

  • Based on variable costs plus a contribution to overheads and profits.
• What is cost plus pricing?

  Adding a profit percentage to the average cost of producing a good.
• What is full cost pricing?

  Taking all business costs into account when pricing a product.
• What is contribution pricing?

  Pricing based on variable costs plus a contribution towards overheads and profits.
• What are the criticisms of cost-based pricing?

  It ignores customer needs, can lead to high prices, and is rigid to market changes.
• What are the discussion themes related to pricing strategies?

  1. Difference between price maker and price taker.

  2. Types of products that would use penetration pricing.

  3. Discussion on the effectiveness of cost-based pricing in today's marketplace.

  4. Discussion on the effectiveness of pricing strategies in winning customers.