12: Pricing Strategies Flashcards
Factors that determine the appropriate pricing strategy (6)

- Product differentiation
- Strength of the brand
- Amount of competition
- PED
- Stage in PLC
- Costs (lowest price a firm can consider)
Loss Leader (2)

- Pricing a product below cost in order to attract further, profitable business
- A temporary promotional tactic
Pricing Strategy (2)

- The plan for setting a product’s price
- For the medium to long term
Skimming (5)
- Used when the new product is __________.
Because ____________________,
- There _________________
- So ______________
- Thus, ______________________

- Innovative
- the product is new
- will be no competition
- price can be set at a premium
- the business recovers some of the R and D costs
New product pricing strategies (2)

- Skimming
- Penetration
Pricing Sensitive (2)

- When customer demand for a product reacts sharply to a price change
- That is, demand is highly price elastic
Competitive Pricing (4)

- Setting price at the market level
- Or at a discount to the market
- Happens in highly competitive markets
- Or in markets where one brand dominates
_______________ can use cost-plus pricing and launch new products using price skimming

- Super strong brands
Skimming (4)
Firms use the initial sales period to _______________
- If sales become stagnant, _________________
- Who were _______________________
- Price may have to be lowered if ________________meaning _____________

- assess the market reaction
- price can be lowered to attract customers
- unwilling to pay the initial price
- competitors enter the market, meaning the firm’s USP is gone
Skimming Disadvantages (3)
- High prices may __________________________________
- Cannot build ____________________, so cannot benefit from _______________
- Early adopters ___________________________ = ___________________

- Encourage competitors to enter the market and undercut
- High sales volume due to the premium price
- Lower unit costs as a result of EOS
- May be highly annoyed when the price is dropped
- Low levels of customer loyalty
Price Elasticity (2)

- A measurement of the extent to which a product’s demand
- Changes when its price is changed
The more direct the competition, the more likely it is that _____________ will be required (1)

- Competitive pricing
Changes in price to reflect social trends (4)

- Online Sales
- Price Comparison Sites
- More information to find the cheapest price
- Despite conflict of interests
Psychological Pricing (3)

- More of a tactic than a strategy
- Belief that psychological price barriers impact sales
- i.e. £9.99 vs £10
__________________ can think in terms of cost-plus pricing, because they can _________________ (2)

- Highly differentiated products
- Stand apart in a crowded market
Existing product pricing strategies (4)

- Cost-plus
- Competitive
- Predatory
- Psychological
Predatory Pricing (4)

- Pricing low enough to drive a rival/rivals out of business
- After the competition is eliminated, prices can be raised
- Works when the predator is strong financially
- And the competition is weak financially
Pricing Tactics (2)

- Short-term pricing responses
- To opportunities or threats
Skimming Advantages (3)
- Early adopters of a product _________________________ - skimming builds a ________________________
- Innovation ____________________ = _______________ = _______________
- Demand _____________________ as __________________

- Want exclusivity and are willing to pay high prices
- High-quality image and perception of the product
- Can be expensive so charging premium prices = high profit margin = recuperates R and D costs
- For innovative products is inelastic
- there is no competition
Cost-plus (3)

- Calulating production costs per unit
- Then adding a % mark up
- Used by firms with strong brand names, e.g. Mercedes
Price-Maker vs Price-Taker (3)

- Price takers must accept the prevailing market price
- And have little control of their market position
- Price makers are able to influence the market price and enjoy pricing power
Penetration Advantages (2)
- _________ = ______________ = ___ = ____________
- _________________________ as consumers may _____________________

- Low price = High sales volume = EOS = Low unit costs
- Valuable strategy in gaining a foothold in existing markets as consumers may switch to save money and subsequently prefer your product/service
A ___________, _____________ with ______________ will have low price elasticity.
Therefore, can use _________ / _________ (5)

- Highly differentiated
- Strong brand
- Little direct competition
- Cost plus
- Price skimming
Penetration (2)
- Used when _________________ where __________________
- The price is _________________

- Used when launching a product into a market where there are similar products
- The price is set initially low to gain market share
Penetration Disadvantages (2)
- Low pricing may _________________________ = ____________________ =___________________
- _________________ = _____________________ = _____________________

- Low pricing may damage brand image as consumers pecieve it as ‘cheap’ = Hard to gain distribution in upmarket retail outlets = Lose out on lucrative revenue streams
- Competitive advantage is cost = consumers become price sensitive = product/service becomes price elastic
Penetration (3)
- Once the ________________________
- It is hoped that _________________will ______________
- And lead to ______________________ from ________________

- Once the product is established, price can be raised
- It is hoped that high levels of initial sales will recover R and D costs
- And lead to lower unit costs as the business benefits from purchasing EOS