Unit 7: Pricing Strategies
Marketing Education
Name:__________________________________
DIRECTIONS: Complete the following outline during the class discussion.
I. The Importance of Price
A. _____________ is the value of money (or its equivalent) placed on a good or service.
B. ______________ is the amount of money a customer must pay for a product.
C. The ______________ of a product can be adjusted much more quickly than other
marketing decisions.
D. The _____________ paid by the customer will determine the profitability of the business.
II. The Objectives of Pricing
A. Maximize _______________ – The business carefully studies the target market to
determine what customers will pay for the product.
B. Increase Market _______________– The business wants to have the highest possible
sales volume.
1. This usually means ____________prices and a large share of the market.
2. This also discourages competitors from entering the market.
C. Maintain an _____________ – Many consumers believe that high prices equal higher
quality.
III. Common Pricing Strategies
A. A _________________ policy means that all customers pay the same price. There is no
negotiation concerning the product’s price. The Dollar Tree retailer has an easy to
understand one-price policy.
B. A __________________pricing policy allows customers to negotiate the price of the
product. Furniture stores and jewelry stores often have flexible pricing policies.
C. A _____________________price strategy is setting a very low price designed to
increase the quantity sold of a product by emphasizing the value.
1. Used to attract a large share of the market early and discourage competition.
2. A price penetration strategy is often necessary to introduce a new brand in an
already crowed product category.
D. Psychological pricing refers to techniques that create an ________________for
customers or that make shopping easier for them. Common psychological pricing
techniques are:
1. _______________ pricing involves setting prices that end in either odd or even
numbers.
2. Odd numbers convey a ________________ image; even numbers convey quality.
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3. _________________ pricing involves setting higher-than-average prices to suggest
status and prestige.
4. __________________ pricing involves pricing items in multiples to suggest a bargain
and increase sales volume.
5. _____________________ pricing provides items at cost to attract customers. Some
products are offered at cost or below in order to _____________ customers into the
store.
6. In ______________________pricing, prices are reduced for a short period of time,
such as a holiday sale.
7. _______________________ prices (EDLP) are low prices that are set on a
consistent basis with no intention of raising them or offering discounts in the future. In
an attempt to remove price as a factor in the buying decision, many companies
promise to match competitor’s prices.
E. Price _______________ are distinct categories of prices based on differences in product
quality and features.
F. Price _________________ is the practice of combining several related services for one
price.
G. Price _________________ is setting a very high price designed to emphasize the
quality or uniqueness of the product.
IV. Determining the Selling Price
A. Discounts and allowances are __________________in a price given to the customer.
1. _______________ Discounts – Offered to customers who buy in large quantities.
2. _______________ Discounts – Offered to customers who buy during times when
normal sales are low.
3. _______________ Allowance – Reduction in price in exchange for the customer’s
old product when a new one is purchased.
4. _______________– Price reduction offered by a printed promotional certificate. This
is a common sales promotion activity.
5. ______________ – Specific amount of money returned to the customer after the
purchase is made.
B. In order to set an ____________________ price, maximum and minimum prices for the
product must be determined.
1. To determine the __________________ price all production, marketing, and
administrative costs must be calculated.
2. The _________________________ is the quantity of a product that must be sold for
total revenues to match total costs at a specific price.
3. The breakeven point is calculated using:
a. Fixed Costs: The costs to the business that do ________ change no matter how
many products are produced. Examples: Insurance, Rent
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b. Variable Costs: Those costs that are directly related to the _____________ of
the product produced. Example: cost of materials and labor.
c. Total Costs: Fixed and Variable costs combined.
d. Product Price or Selling Price: The price at which the product is sold.
e. Total Revenue: The anticipated quantity of the product that will be sold multiplied
by the product’s selling price.
f. Subtract total costs from projected total revenue to determine a breakeven point.
C. The ________________________ is the difference between the cost of the product and
the selling price.
D. Operating ________________ are all the costs associated with actual business
operations. Examples include buildings, equipment, utilities, salaries, taxes, and other
business expenses.
E. Net ____________ is the difference between the selling price and all costs and
operating expenses associated with the product sold.
F. A ________________ is an amount added to the cost of a product to determine the
selling price.
G. A ________________ is a reduction from the original selling price.
H. A _____________________ is a tax charged on retail sales receipts and added to the
selling price by retailers.
V. Government Influence on Pricing
A. The government attempts to prevent _______________ competition by regulating
businesses, prohibiting unfair pricing, and using taxation to discourage or encourage
certain behaviors.
B. The __________________allows the inventor to have greater control of the price
charged for the product.
C. New products are protected from competition with _______________granted to
inventors for a period of _______ years.
D. An _______________ in the tax on a product makes it less attractive to consumers.
E. High _____________on tobacco and alcohol products are designed to discourage the
use of those products.
F. By lowering taxes on alternative fuels, such as ethanol, the government hopes to
______________________ the use of those products.
VI. Ethics in Product Pricing
A. Some pricing strategies are __________________ and can be illegal which can result in
fines and negative publicity. Southwest Fined $200,000 for Deceptive Pricing
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B. Illegal price ____________________occurs when businesses charge different prices to
other businesses.
C. ________________ price discrimination is common and generally is not considered to
be illegal. Examples: airline travel and movie tickets.
D. Bait-and-_____________ pricing occurs when a business advertises a low priced
product with the intention of selling the consumer a higher priced product when the
customer visits the store.
E. By the _____________ pricing indicates the price per ounce or pound on the shelf tag
and is required by law in many states.
F. Price _____________ occurs when businesses cooperate with each other to set prices.
VII. The Economics of Pricing
A. A surplus, or _______________ market, occurs when a large supply of a product exists
and the demand is low; the price will be low.
B. A shortage, or _______________market, occurs when there is a small supply of a
product (real or perceived) but a very large demand; the price will usually be high.
C. Elasticity of ______________ describes the relationship between changes in a product’s
price and the demand for that product.
D. With _________________ demand, a change in price will NOT result in a significant
change in demand.
E. With _______________ demand, a change in price __________ result in a significant
change in demand.
F. Most products have _______________demand and will experience a change in demand
when the price increases or decreases.
G. Steak is not a __________________ and has many substitutes. The demand for steak
is elastic.
H. Some products will ___________ experience a change in demand when the price
increases or decreases.
I. Insulin for a diabetic is a necessity and does not have a substitute.
J. The law of ______________ _______________ ______________ states that
consumers will buy only so much of a given product, even though the price is low.
K. Some products have _________________ demand because the price is very low, there
are few if any substitutes, and we use very little of the product.
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