12A : Pricing Strategies Flashcards
What factors influence pricing ?
•costs: price must cover costs in the long form to survive
• competition: prices will fall if there are more competitors
• demand: products in demand usually have high prices
Name all the price strategies
•Penetration pricing
•Market skimming
• cost plus pricing
• competitive pricing
•psychological pricing
• contribution
• loss leaders
What is penetration pricing?
•Prices to get customers into a habit of buying the product
- usually low prices for high volume of purchases
-Used by large firms
-Only suitable for product with long life cycles
What is market skimming?
When Prices are set high for a limited und skim all the profit while product is still unique (can then invest back into the business )
What is cost plus pricing?
• When businesses set their prices to cover their direct costs indirect costs and the percentage mark up for profit
What are the advantages and disadvantages of cost plus pricing?
Ad:
- quick and simple way of calculating a price
- Ensures total casts have been covered
- changes in costs can be passed onto the customer
Dis:
-Price could be to expensive the competitors are Engraved
- some product may need more storage space therefore need more fixed costs
What is competitive based pricing (going rate pricing)
Setting prices based on what rivals are charging (they are price takers)
What are the advantages and disadvantages of competitive based pricing
Ad:
- Selling prices should be line with rivals( se price should not be a competitive disadvantage)
Dis:
- Business needs other ways to attract customers
-Has to use non- price methods no compete e.g. Providing better customer service
What is psychological pricing?
Making the customer believe the product is cheaper than it really is
e.g. A new car might be priced at 12,999 rather than 13,000
What are the disadvantages and advantages psychological pricing
Ad:
- Encourages consumers to make larger purchases e.g. a £99 product is more likely to be purchased than a £100
- increases sales revenue
- Encourages impulse buys
Dis:
- Rivals may use same technique (its effect becomes limited )
-not all customers are influenced by this product
What is contribution pricing
when businesses Set the price based on the variable cost of the product and their fixed costs
What is loss leader
When goods/services are purposely sold
Below cost he encourage sales elsewhere
What pricing strategies should be chosen for new products
•Market skimming: good for moving between a niche market and mass market
•Penetration pricing: good for building brand loyalty in a competitive market and mass market
What pricing strategies should already existing products use
• Cost based pricing: covering the costs of production
• competition based pricing: follow prices charged by rivals
