Pricing and Profit Margins Flashcards
6 cards from real Dropshipping practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Pricing and Profit Margins flashcards as text
What is 'competitor price matching' and what is its main risk in dropshipping?
Answer: Matching a competitor's lower price, which can trigger a race to the bottom destroying margins
While matching competitor prices can retain customers, it can trigger a destructive pricing war that erodes everyone's margins without building brand value.
What is 'value-based pricing' in dropshipping?
Answer: Setting prices based on the perceived value to the customer rather than just cost-plus margin
Value-based pricing allows dropshippers to charge more by emphasizing the product's benefits, solving a problem, or enhancing brand perception beyond commodity pricing.
How does offering free shipping affect a dropshipping store's pricing strategy?
Answer: Shipping cost must be built into the product price to maintain margin
When offering free shipping, the shipping cost must be absorbed into the retail price, so dropshippers need to price products slightly higher to maintain their profit margin.
What is 'dynamic pricing' in ecommerce and how can it benefit a dropshipping store?
Answer: Automatically adjusting prices based on demand, competition, or time to maximize revenue
Dynamic pricing uses data-driven rules to automatically raise or lower prices in response to competitor changes or demand shifts, optimizing revenue without manual intervention.
Which of the following best describes 'contribution margin' for a dropshipping product?
Answer: Revenue minus variable costs (product + shipping + ad spend) per unit
Contribution margin shows how much revenue from each sale contributes toward covering fixed costs and generating profit after variable per-unit costs are subtracted.
What is the impact of high advertising costs (CAC) on a dropshipping product's profitability?
Answer: High CAC directly reduces net profit, potentially making a product unprofitable even with good margins
When the cost to acquire a customer exceeds the contribution margin of the product, every sale creates a loss, making high-CAC products unviable without repeat purchases.