Objective 9.02
KEY
Pricing Policies & Strategies Vocabulary
Competition oriented pricing
Demand oriented pricing
Markup pricing
Prestige pricing
Psychological pricing
Unit pricing
Cost oriented pricing
Fixed pricing
Odd/even cent pricing
Price lining
Skimming pricing
Variable pricing
Cost-plus pricing
Loss leaders
Penetration pricing
Promotional pricing
Special event pricing
Fill in each box with the proper vocabulary term from the above list.
1. Implemented by carefully examining all of the costs associated with carrying a
product and selling it to consumers then adding the desired profit to arrive at a selling
price.
Cost-Oriented Pricing
2. Used primarily by wholesales and retailers (organizations that buy for resale), price
planners simply add a predetermined percentage to the cost of products. This
percentage is usually a figure applied to all products carried by the business.
Markup Pricing
3. Used by manufacturers and service organizations, price planners examine costs for
individual products or services and add a standard markup. This strategy is more
complicated due to the fact that products and services are considered individually rather
than adding a predetermined percentage added across the board.
Cost-plus Pricing
4. Most effective when selling products with inelastic demand, this pricing strategy
requires price planners to estimate the value customers place on products and set
prices accordingly. When selling products with elastic demand, an inaccurate
estimation can undermine the success of a business.
Demand-oriented Pricing
5. All price planners use this strategy to some degree. It is unique in that it does not
consider costs and expenses or profit goals in the process.
Competition-Oriented Pricing
6. Selling a product below costs in an effort to increase customer traffic.
Loss Leader
Small Business Entrepreneurship
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Objective 9.02
7. Involves selling a product at a temporarily lower price in order to attract customers.
Promotional Pricing
8. “Back-to-School” sales and other similar sales events are considered this type of
pricing.
Special Event Pricing
9. When an organization charges the same prices to all customers regardless of the
quantity of the purchase.
Fixed Pricing
10. Appropriate for specific types of products, this technique encourages customers to
bargain with sellers in an effort to obtain the best price for products and services. Used
when selling cars, furniture, jewelry, and other similar products.
Variable Pricing
11. Price points are used to communicate differences in quality and/or service to
consumers. For example, car manufacturers set price points for economy, standard,
and luxury models and use quality and features to justify the difference in price among
the models in their line.
Price LIning
12. Stating the price of a product per unit of standard measure such as per ounce,
pound, or serving.
Unit Pricing
13. Used by organizations that believe that customers base their perceptions of
products on price and these perceptions affect customer-buying decisions.
Psychological Pricing
14. Based on the principle that prices ending in odd numbers ($5.99) communicate a
bargain and prices ending in even numbers ($6.00) communicate quality. This
technique is widely used by retailers.
Odd/Even Cent Pricing
15. Believing that customers equate high price with high quality, this technique sets a
higher-than-average price for products in order to communicate quality and status.
Prestige Pricing
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Objective 9.02
16. Introducing a product that has few competitors and will appeal to customers who like
to be the first to have the latest products, a high price will capitalize on demand.
Skimming Pricing
17. When introducing a product into a competitive market and attempting to gain
customer trial, setting a low price will motivate customers to purchase.
Penetration Pricing
18. List the 6 steps in setting price:
Determine pricing objectives
Study the competition
Study costs
Decide on a pricing strategy
Estimate demand
Set your price
19. For each of the following statements, write the step in setting price that is being
described.
a. During this step a business owner needs to continue to monitor sales, customer
reactions, etc. to determine when changes are needed.
Set your price
b. During this step a business owner needs to determine how he/she will respond to
the prices of competitors.
Study the competition
c. During this step a business owner should examine all of the costs associated with
carrying a product and selling it to customers.
Study costs
d. During this step a business owner should consider their purpose in setting a price—
to establish an image, increase market share, or increase profit.
Determine pricing objectives
e. During this step a business owner should decide which pricing strategy would offer
the greatest potential for profit.
Decide on a pricing strategy
f. During this step a business owner should conduct product/market research to
determine inventory levels needed to meet customer needs.
Estimate demand
Small Business Entrepreneurship
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