12: Pricing Strategies Flashcards
1
Q
Factors that determine the appropriate pricing strategy (6)
A
- Product differentiation
- Strength of the brand
- Amount of competition
- PED
- Stage in PLC
- Costs (lowest price a firm can consider)
2
Q
Loss Leader (2)
A
- Pricing a product below cost in order to attract further, profitable business
- A temporary promotional tactic
3
Q
Pricing Strategy (2)
A
- The plan for setting a product’s price
- For the medium to long term
4
Q
Skimming (5)
- Used when the new product is __________.
Because ____________________,
- There _________________
- So ______________
- Thus, ______________________
A
- 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
5
Q
New product pricing strategies (2)
A
- Skimming
- Penetration
6
Q
Pricing Sensitive (2)
A
- When customer demand for a product reacts sharply to a price change
- That is, demand is highly price elastic
7
Q
Competitive Pricing (4)
A
- 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
8
Q
_______________ can use cost-plus pricing and launch new products using price skimming
A
- Super strong brands
9
Q
Skimming (4)
Firms use the initial sales period to _______________
- If sales become stagnant, _________________
- Who were _______________________
- Price may have to be lowered if ________________meaning _____________
A
- 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
10
Q
Skimming Disadvantages (3)
- High prices may __________________________________
- Cannot build ____________________, so cannot benefit from _______________
- Early adopters ___________________________ = ___________________
A
- 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
11
Q
Price Elasticity (2)
A
- A measurement of the extent to which a product’s demand
- Changes when its price is changed
12
Q
The more direct the competition, the more likely it is that _____________ will be required (1)
A
- Competitive pricing
13
Q
Changes in price to reflect social trends (4)
A
- Online Sales
- Price Comparison Sites
- More information to find the cheapest price
- Despite conflict of interests
14
Q
Psychological Pricing (3)
A
- More of a tactic than a strategy
- Belief that psychological price barriers impact sales
- i.e. £9.99 vs £10
15
Q
__________________ can think in terms of cost-plus pricing, because they can _________________ (2)
A
- Highly differentiated products
- Stand apart in a crowded market
16
Q
Existing product pricing strategies (4)
A
- Cost-plus
- Competitive
- Predatory
- Psychological
17
Q
Predatory Pricing (4)
A
- 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
18
Q
Pricing Tactics (2)
A
- Short-term pricing responses
- To opportunities or threats
19
Q
Skimming Advantages (3)
- Early adopters of a product _________________________ - skimming builds a ________________________
- Innovation ____________________ = _______________ = _______________
- Demand _____________________ as __________________
A
- 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
20
Q
Cost-plus (3)
A
- Calulating production costs per unit
- Then adding a % mark up
- Used by firms with strong brand names, e.g. Mercedes
21
Q
Price-Maker vs Price-Taker (3)
A
- 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
22
Q
Penetration Advantages (2)
- _________ = ______________ = ___ = ____________
- _________________________ as consumers may _____________________
A
- 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
23
Q
A ___________, _____________ with ______________ will have low price elasticity.
Therefore, can use _________ / _________ (5)
A
- Highly differentiated
- Strong brand
- Little direct competition
- Cost plus
- Price skimming
24
Q
Penetration (2)
- Used when _________________ where __________________
- The price is _________________
A
- Used when launching a product into a market where there are similar products
- The price is set initially low to gain market share
25
Q
Penetration Disadvantages (2)
- Low pricing may _________________________ = ____________________ =___________________
- _________________ = _____________________ = _____________________
A
- 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
26
Q
Penetration (3)
- Once the ________________________
- It is hoped that _________________will ______________
- And lead to ______________________ from ________________
A
- 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
