122 price

Question 1

penetration pricing

Answer 1

• setting a low price to encourage consumers to purchase the product , and then to keep buying the product when the price is raised to a profitable level
  -useful when the price is elastic, most often used where the product has lots of competition and low price is needed to attract the consumer away from a rival product

Question 2

price skimming

Answer 2

• setting a high price to maximise profits on each item sold for a limited period of time
  -aim is to get as much profit as possible for a new product while it remains unique in the market , strategy works when price is inelastic in the short term eg .new technology

Question 3

cost plus pricing

Answer 3

• a profit percentage is added to the average cost of producing the good
  (+) useful-every product is sold at a profit
  (-) doesn’t take into account prices of competition

Question 4

competitive pricing

Answer 4

• where a business prices its products based on the competiton
  includes: going rate pricing , loss leader pricing, destroyer pricing and dynamic pricing

Question 5

psychological pricing

Answer 5

• pricing goods just below the round figure eg.£1.99
  -aim is to make the customer believe the product is cheaper than it really is and convince potential people to buy their goods

Question 6

contribution pricing

Answer 6

• price is set to cover the variable and fixed costs (contribution)- after covering these the business aims to make profit
  (contribution per unit = selling price - variable cost per unit)
  (total contribution = contribution per unit x number ordered/sold )
  -the business can price the product lower than usual for some customers as it will make a positive contribution to the business

Question 7

loss leader pricing

Answer 7

• involves the selling of products at a loss, with the expectation that this will generate further sales of some form elsewhere in the business eg.supermarkets selling bread at a loss

Question 8

evaluate the impact of pricing strategies to a business

Answer 8

(+) -prices can be applied to specific niche/market segment-> so a higher price may be charged, -prices can take into account actions of competitors-> stops customers switching to rival firms

however price is only one part of the marketing mix , place/promotion ext may have a bigger impact on the sales and profit of the business eg. promotion -new product in a competitive market needs promotion to reinforce brand image and attract customers away from competition