AMA AMA Pricing Strategy & Revenue Management 1 — Questions and Answers
Question 1: Which pricing strategy sets prices based on the perceived value of the product to the customer rather than on cost?
- Cost-plus pricing
- Value-based pricing (Correct answer)
- Competitive pricing
- Penetration pricing
Correct answer: Value-based pricing
Value-based pricing determines price according to how much customers believe the product is worth, not what it costs to produce.
Question 2: A company launching a new product sets an initially low price to quickly gain market share. This strategy is called:
- Price skimming
- Premium pricing
- Penetration pricing (Correct answer)
- Bundle pricing
Correct answer: Penetration pricing
Penetration pricing uses a low initial price to attract customers quickly and build market share before potentially raising prices later.
Question 3: Price elasticity of demand measures:
- How production costs change with volume increases
- How sensitive consumer demand is to changes in price (Correct answer)
- The difference between cost and selling price
- How quickly competitors respond to price changes
Correct answer: How sensitive consumer demand is to changes in price
Price elasticity of demand quantifies the percentage change in quantity demanded resulting from a percentage change in price.
Question 4: Which psychological pricing tactic is exemplified by pricing a product at $9.99 instead of $10.00?
- Bundle pricing
- Odd-even pricing (Correct answer)
- Price anchoring
- Dynamic pricing
Correct answer: Odd-even pricing
Odd-even pricing uses prices ending in odd numbers (e.g., $9.99) to create a perception of a lower price point in consumers' minds.
Question 5: A price skimming strategy is most appropriate when:
- Entering a highly competitive commodity market
- Launching a differentiated product to a price-insensitive early adopter segment (Correct answer)
- Trying to maximize short-term unit sales volume
- Competing against well-established lower-cost rivals
Correct answer: Launching a differentiated product to a price-insensitive early adopter segment
Price skimming works best for innovative products where early adopters are willing to pay a premium before prices are reduced for mass market segments.
Question 6: The break-even point in pricing is reached when:
- Total revenue equals total variable costs
- Total revenue equals total fixed plus variable costs (Correct answer)
- Gross margin reaches 50%
- Unit sales exceed the previous quarter's volume
Correct answer: Total revenue equals total fixed plus variable costs
The break-even point occurs when total revenue exactly covers all costs (fixed + variable), resulting in zero profit or loss.
AMA AMA Pricing Strategy & Revenue Management 1
Which pricing strategy sets prices based on the perceived value of the product to the customer rather than on cost?