1.3.3 Pricing Strategies (1/4)

Question 1

Strategy

Answer 1

A set of plans designed to meet objectives

Question 2

Pricing strategies

Answer 2

The pricing methods used by a business when deciding what to charge for its products

Question 3

How many pricing strategies are there

Answer 3

6

Question 4

What are the 6 pricing strategies

CC PPPP

Answer 4

1) Cost plus pricing

2) Competitive pricing

3) Price skimming

4) Penetration pricing

5) Predatory pricing

6) Psychological pricing

Question 5

Cost plus pricing

Answer 5

when a business bases a price on the unit costs and then adds a mark up

Question 6

Unit costs

Answer 6

the amount of money that it costs a company to produce one unit

Question 7

Mark up

it’s usually a small % of what

Answer 7

is a percentage added to the cost price (price it takes to make a one unit) to determine the selling price

it’s usually a small % of unit costs

Question 8

An example of cost plus pricing and a mark up

Answer 8

making a phone for £500 then selling it for £600

Mark up is %20

e.g apple

Question 9

Advantages of cost plus pricing (2)

• costs

Answer 9

1) provides a full cost coverage and a consistent rate of return

Question 10

Disadvantages of cost plus pricing (2)

• conditions
• consumers
• costs

Answer 10

1) Ignores market conditions e.g mark up used may be too high compared to rivals + the demand for the (consumers)

2) Doesn’t encourage to control the costs - you know you’re gonna cover the costs anyways

Question 11

Price skimming

Pros -3 & Cons -2 of price ski(sky) mming

Answer 11

Launching a product into a market charging a high prices at for a limited time period

Pros
- helps to maximise revenue

• helps to recover high costs

-helps elevate image of product

Cons
- can only use if price is inelastic

-attract competition - rivals may join market charging lower prices

Question 12

Aim of price skimming

Answer 12

to generate high levels of revenue before competitors arrive

Question 13

Penetration pricing

Pros - 2 and cons - 1

Answer 13

introducing a new product and charging lower prices for a limited time period

Pros
- grow sales of new products easily - can then gradually increase when product becomes established

-helps dominate the market - customers will buy your product because it’s cheaper and it’s difficult for other competition to enter

Cons
-If pricing increases customers may leave to substitutes

Question 14

aim of penetration pricing

Answer 14

to get a foothold in the market

Question 15

When should businesses use penetration pricing

Answer 15

if only they have a low costs base

lower average unit costs