PCM PCM Pricing Strategy & Management 1 — Questions and Answers
Question 1: What pricing strategy involves setting a high initial price and gradually lowering it as competition increases?
- Price skimming (Correct answer)
- Penetration pricing
- Value-based pricing
- Cost-plus pricing
Correct answer: Price skimming
Price skimming targets early adopters willing to pay a premium before reducing the price to attract more price-sensitive customers.
Question 2: A company launches a new product at a very low price to quickly gain market share. This is called:
- Psychological pricing
- Penetration pricing (Correct answer)
- Price skimming
- Prestige pricing
Correct answer: Penetration pricing
Penetration pricing uses a low introductory price to build market share rapidly, often raising prices once customer loyalty is established.
Question 3: Price elasticity of demand measures:
- How production costs change with volume
- The relationship between advertising spend and sales
- How sensitive customer demand is to price changes (Correct answer)
- The gap between cost and selling price
Correct answer: How sensitive customer demand is to price changes
Price elasticity of demand quantifies the percentage change in quantity demanded relative to a percentage change in price.
Question 4: Which pricing approach sets price primarily based on the perceived value a product delivers to customers?
- Cost-plus pricing
- Competitor-based pricing
- Value-based pricing (Correct answer)
- Break-even pricing
Correct answer: Value-based pricing
Value-based pricing anchors price to what customers believe the product is worth rather than to internal costs or competitor benchmarks.
Question 5: A 'loss leader' pricing strategy involves:
- Pricing above competitors to signal quality
- Selling a product below cost to draw customers who then buy profitable items (Correct answer)
- Offering discounts only to loyal customers
- Setting the lowest price in the entire market
Correct answer: Selling a product below cost to draw customers who then buy profitable items
A loss leader sacrifices margin on one item to generate store traffic and increase overall basket size with higher-margin purchases.
Question 6: MSRP stands for:
- Market Standard Retail Protocol
- Manufacturer's Suggested Retail Price (Correct answer)
- Minimum Stated Resale Price
- Managed Sales Revenue Plan
Correct answer: Manufacturer's Suggested Retail Price
MSRP is the price a manufacturer recommends retailers charge consumers, serving as a common reference point across distribution channels.
PCM PCM Pricing Strategy & Management 1
What pricing strategy involves setting a high initial price and gradually lowering it as competition increases?