4.5 Key Terms (Price)

Unit 4.5 Key Terms - Price

HL only key terms are show in red text.

Key term	Definition
Competitive pricing	This pricing method involves a business setting the price of its products at the same or similar level charged by competitors in the market.
Contribution pricing	A pricing method that involves setting the price of a product at a level higher than the direct costs. Hence, the sale of each product earn the firm a positive contribution towards paying its indirect costs.
Cost-plus pricing (or mark-up pricing)	Adds a profit margin to the costs of production, thereby ensuring that each unit sold contributes towards the profits of the firm.
Dynamic pricing	This refers to charging customers different prices based on changing demand at different times of the day, week, month, or year.
Loss leader pricing	Pricing a product below its cost of production so as to attract customers to also buy other items (with a higher profit margin).
Mark-up (or the profit margin)	The difference between the price and the cost per unit.
Penetration pricing	A pricing method that involves a firm setting low prices so as to gain entry in a new market. The firm will then raise the price once the product or brand has established itself in the industry.
Predatory pricing	A strategy that involves charging a low price, sometimes even below the cost, so as to damage the sales of rivals.
Premium pricing	A pricing method that involves a firm charging significantly higher prices than similar or competing products in the market. This is usually due to the prestige or quality associated with the product or brand.
Price	The value of a good or service that is paid by the customer.
Price elasticity of demand	PED measures the extent to which the demand for a good or service is responsive to changes in the price of that product.
Price leadership	A strategy of following the price set by the dominant firm in the industry (the firm with the largest market share).
Price wars	The process of rival businesses competing by continually reducing prices so as to threaten the competitiveness of rivals in the market.
Pricing methods	This refers to the various ways a business can set a price for its goods and services. The price of a good or service is paid by customers.

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