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
