1.3.3 Pricing strategies Flashcards
4 Ps
price
product
place
promotion
pricing strategy
approach which a business decides on for setting the price of its products/services
6 types of pricing strategies that businesses use?
- price skimming
- competitive pricing
- predatory pricing
- penetration pricing
- psychological pricing
- cost plus pricing
cost plus pricing
- adding % to the av total cost of product
- calculate cost of producing and adding a % mark up that reflects profit level a business wants
adv: profit per unit (cover costs)
dis: not competitive, outside env comp price lower
price skimming
-very high initial price for NEW product
-differentiating factor e.g. innovation/USP
demand lowers = price lowers = further demand
adv: initial high=recoup R&D costs, exclusivity& innovation
dis: unattractive (existing cust) base, expensive than comp, customers put off, quality perception damage once price drops
competitive pricing
- same as/little less than competitors
- prices in line with/little less than rest of market
adv: customer loyalty = freedom to price competitively, customers due to better value of offering, decrease price = sales uplift and increase in customers
dis: reduction in price = worse quality, comp = lower
penetration pricing
NEW market
- lower price than comp = persuade cust of existing = try new = market share
- price low entering established price can be increased
adv: gain MS quick, low price = attract customers, loyalty
dis: lower profit margins, comp =reduce difficult to justify increasing yours, low price = perceived quality/brand reputation
psychological pricing
- price seem more attractive than actually rounding down
- rounding down your pricing to seem better value
adv: better perceived value = sales, dont exceed price elastic consumer barriers
dis: customers see through it, decrease in profit margins due to psychological gain, earning more rev higher price
predatory pricing
dominant business = reduce comp prices are set at a VERY LOW level,
below costs of production = drive out comp/ new entrants
-hope prices can rise once competitor is out of the market
adv: drive competitor out of market = more sales
dis: illegal (under competition laws of most countries but very difficult to prove) , short term loss
loss leaders (pricing tactic = short term)
- pricing at a loss = gain footfall & sales uplift areas of bus
adv: gain increased sales and footfall
dis: short term loss
footfall
walking into a shop
factors influencing price
- stage in PLC
- type of production (costs)
- R&D costs
- target market (position in market)
- current performance (brand loyalty)
- competition
- elasticity of demand (price/income)
- brand image (strength)
- location
- the economy (inflation) (disposable income)(bus cycle)
- business size (market share)
- business objs (marketing)
- first mover advantage
- USP/differentiation
- power of business in market (porter’s 5 forces)
- ethical stance
- scarcity of resources (supply)
- type of market (competitive, share, competition)
- product type (quality/luxury)
behaviour invested regarding pricing
- office of fair-trading (OFT) = responsible for investigating suspected abuse of monopoly power and engaging in prohibited practices
- 2 main types of behaviour they investigate
1. collusive behaviour
2. abuse of market power
price elasticity of demand
- product price elastic = demand will change based upon changes in price
- price is inelastic = demand will not change base upon changes in price
changes in pricing to reflect social trends
- online sales (e.g online travel agencies)
-price change frequently & quickly in response to change in demand,
dynamic pricing made possible by technology that track demand and interest levels - price comparison websites (e.g. Gocompare)
businesses are forced to be more competitive, aware customers can easily compare prices
social trends
relate to the social and cultural values/practices in society
long term trends (at least 2-5yrs)
explain behaviours
% mark up formulae
selling price(new price) - unit cost divided by unit cost x100
% change
new - old divided by old x 100
price
amount paid by the customer for a good or service
price war
period of fierce competition
where traders cut prices to increase their share of mkt
premium pricing
quality
added value
brand
price discrimination
charge diff price to diff people for same thing e.g. cinema
dynamic pricing
e.g. Uber
pricing strategy
business set flexible prices for product/service based on current market demands
strategies for new products
- price skimming
- penetration pricing
intro stage of PLC
5 branding types
- umbrella
- family
- corporate
- own brand
- market share
how do social trends affect pricing
6 ways
- consumer support/momentun
- ethics (info available, consumerism, stance)
- digital tech trend (perfect competition)
- rise in commerce (social media, mobile device, e-commerce)
- lobbying (celebs taxes, prices, endorsement)
- industrial action
how does commerce impact pricing
rise in commerce
increase price transparency
downward pressure on prices
