1/4 - Pricing Strategies Flashcards
1
Q
What pricing strategies are used for NEW products?
A
Price Skimming & Price Penetration.
2
Q
What is price skimming?
A
Launching a brand new product at a high price while the product is unique.
3
Q
What is price penetration?
A
Involves launching a new product at a very low price so customers try it.
4
Q
What should the pricing strategy for new products be determined by?
A
The level of competition:
- A new product with NO clear rivals is likely to use SKIMMING.
- But a product with MANY close competitors cannot use skimming as nobody would be likely to buy.
5
Q
What are 3 advantages of price skimming?
A
- High price = desirable image (high quality)
- Early adopters will pay higher prices for exclusivity.
- High price = rapid profit helping to recover innovation costs.
6
Q
What are 3 disadvantages of price skimming?
A
- Deter some customers as sees as a ‘rip off’.
- Early byers frustrated when price starts to fall.
- Image may suffer when prices fall.
7
Q
What are 4 advantages of price penetration?
A
- Low prices encourage product sampling.
- Low prices boost sale volumes cutting production costs.
- High volumes may persuade retailers to buy the product - boosting distribution.
- Encourages customers to develop the habit of buying the product.
8
Q
What are 3 disadvantages of price penetration?
A
- Products image may be seen as ‘cheap’.
- Some higher quality retailers may not want to stock the product.
- Likely to create a price sensitivity among customers, high price elasticity.
