1.3.3 - Pricing Strategies Flashcards
What is price?
The money charged for a product or service. Everything that a customer has to give up in order to acquire a product or service.
What are the stages of price setting?
Develop pricing objectives. Assess of target market’s ability to purchase. Determine demand for product. Analyse demand, cost and profit relationship. Evaluate competitor’s prices. Select pricing strategy and tactics. Decide on price.
What are some possible business objectives that will influence pricing?
Financial - maximise profit, achieve a target level of profits, achieve a target rate of return, maximise sales revenue, improve cash flow. Marketing - maintain/improve market share, beat/prevent competiton, increase sales, build a brand.
What are the competitors that significantly inluence how pricing is set?
Price takers - have no option but to charge the ruling market price. Price makers - able to fix their own price. Price leaders - market leaders whose price changes are followed by rivals. Price followers - follow the price-changing lead of the market leader.
What is cost plus pricing?
This involves adding a mark-up to unit costs. The mark-up is usually a percentage of the unit cost. This method is common with retailers. However, one of the drawbacks of this method is that it ignores market conditions. Another promblem is that it may be difficult to identify precisely all the costs associated with the production of a particular product.
What is psychological pricing?
Consumers are “tricked” into thinking that 0.99 is significantly cheaper than 1.00. This approach targets consumers who are looking for bargins.
