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Business ALevel: Theme 1 > 1.3.3 Pricing Stategies > Flashcards

1.3.3 Pricing Stategies Flashcards

1
Q

What is price?

A

The amount of money (capital) that the customer had to pass to receive the good or service

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2
Q

What are the pricing strategies

A
  1. Cost plus pricing
  2. Competitive pricing
  3. Price skimming
  4. Penetration pricing
  5. Predatory pricing
  6. Psychological pricing
  7. Premium pricing
  8. Promotional pricing
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3
Q

What is cost plus pricing?

A

The cost to produce the products are worked out then money is added on top.
2 ways of doing this
- add profit margin in £
- add a % markup on-top of the cost of making the product
Eg coffee, branded clothing

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4
Q

Advantages of cost plus pricing

A
  1. Maximise profit margin
  2. Reach break even point quicker
  3. Simple to understand
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5
Q

Disadvantage of cost-plus pricing

A
  1. If prices are too high, demand (PED) may fall for inelastic goods
  2. Can be complex to monitor
  3. Ignore value generation
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6
Q

What is competitive pricing?

A

Some products or services are priced in lines it’s rivals

Means that customer will have to judge a product or service on “non-price” methods such as quality of service or speed

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7
Q

Benefit of competitive pricing

A

Allows business to build loyalty

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8
Q

Disadvantage of competitive pricing

A

Increase cost to offer better option

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9
Q

What is price skimming?

A

A product is price high to begin with as it has desirability factor (novelty) that will mean customers will want it when it is new

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10
Q

Benefits of price skimming

A
  1. Spreads positive word of mouth

2. High in demand- can charge high prices

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11
Q

Disadvantages of price skimming

A
  1. Sales falls overtime

2. Spends on R&D

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12
Q

What is penetration pricing?

A

Setting up prices really low on a new product to encourage sales and to persuade the customers to try the product.

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13
Q

Benefits of penetration pricing

A
  1. Increased revenue

2. Builds loyalty

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14
Q

Drawbacks to penetration pricing

A
  1. Perception of lower quality item
  2. Making less profit per item sold
  3. More power to consumers as they choose based on ‘non- price’ factors
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15
Q

What is predatory pricing?

A

Existing businesses my hold off the threat of a new entrant by lowering their prices so that any competitors cannot make profit

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16
Q

Benefits of predatory pricing

A
  1. Very high revenue

2. Gives competitive advantage

17
Q

Negatives of predatory pricing

A
  1. Limited to no profit margin

2. Sells more product to break-even- high breakeven point

18
Q

What is psychological pricing?

A

Pricing a product just below a whole round number to appear cheaper and giving the customer more value for their money

19
Q

Benefits of psychological pricing

A
  1. Works well in mass market goods with lots of competition

2. Increase sales

20
Q

Drawbacks of psychological pricing

A
  1. Losing capital- making a loss per item

2. Perception of lower quality item

21
Q

What is premium pricing?

A

Pricing a product at a high price due to its perceived level of quality attached to product/service

22
Q

Benefits of premium pricing

A
  1. High profit margins
  2. Increases brand product value
  3. Lower breakeven point
23
Q

Drawbacks of premium pricing

A
  1. Limited target market

2. Production cost will be higher

24
Q

What is promotional pricing?

A

Using incentives/sales promotions to encourage short term level of sales

25
Q

Benefits of promotional pricing

A
  1. High sales

2. Encourage new customers to trial

26
Q

Drawbacks of promotional pricing

A
  1. Short term strategy

2. Customers expect sale price long term disappointment

27
Q

Main factors influencing pricing

A
  1. Cost of making the product
  2. PED
  3. Stage of product life cycle
  4. Market share
  5. Marketing objectives
  6. Market positioning
  7. Competitor prices
28
Q

Changes in pricing to reflect social trends

A
  1. Increased online sales/e-commerce/ e-tail- products need to have stronger branding or lower prices to persuade consumers to switch
  2. Increased use of price comparison sites before purchasing

Business ALevel: Theme 1 (12 decks)

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