1.3.3 Pricing strategies

Question 1

What are the 6 type of pricing strategies?

Answer 1

/Cost plus
/Price skimming
/Penetration
/Psychological
/Competitive
/Predatory

Question 2

Explain cost plus pricing?

Answer 2

The business calculates the cost of production and then adds a markup to determine the final price. The markup covers the cost of production plus the business’s desired profit margin.

Question 3

Explain price skimming?

Answer 3

The business sets a high price for a new product/service when it is first introduced to the market, then gradually lower the price as demand falls to make sure sales continue.

Question 4

Explain penetration pricing?

Answer 4

The business sets a low price for a new product/service when it is first introduced, this can quickly gain market share then once they have enough customers they can raise the prices.

Question 5

Explain predatory pricing?

Answer 5

The business sets prices so low that it drives its competitors out of the market, this is considered an anti - competitive strategy and is illegal in many countries.

Question 6

Explain competitive pricing?

Answer 6

The business sets its prices based on its competitors’ prices, this is effective in a highly competitive market if the company wants to maintain its market share.

Question 7

Explain psychological pricing?

Answer 7

This pricing strategy takes into account the customer’s emotions, beliefs, and attitudes towards the product/service E.g. a business may set its prices at £9.99 instead of £10 as customers perceive the former as a better value.

Question 8

What factors influence the choice of pricing strategies?

Answer 8

/Number of USPs and amount of differentiation
/Price elasticity of demand
/Level of competition in the business environment
/Strength of the brand
/Stage in the product life cycle
/Cost and the need to make a profit

Question 9

Explain number of USPs and amount of differentiation?

Answer 9

Products with many USPs and high differentiation can command higher prices.

Question 10

Explain price elasticity of demand?

Answer 10

Businesses should set lower prices If the product is price elastic. Businesses should set higher prices If the product is price inelastic.

Question 11

Explain level of competition in the business environment?

Answer 11

In highly competitive markets businesses may need to set their prices low to remain competitive. In highly competitive markets businesses may need to set their prices low to remain competitive.

Question 12

Explain strength of the brand?

Answer 12

A strong brand with a loyal customer base can command higher prices.

Question 13

Explain stage in the product life cycle?

Answer 13

In the introduction stage, prices may be set lower to attract customers and build market share. In the growth stage, prices can increase as demand for the product increases. In the maturity stage, prices may need to be lowered again.

Question 14

Explain costs and the need to make a profit?

Answer 14

Prices must cover the cost of production and provide a reasonable profit margin.

Question 15

What 2 social trends have had drastic impact on pricing strategies?

Answer 15

/Online sales
/Price comparison sites

Question 16

Explain online sales?

Answer 16

Online sales offer customers convenience and 24/7 accessibility. Retailers have shifted their focus to online sales and adjusted their pricing strategies.One way that pricing has changed to reflect this trend is through the use of dynamic pricing.

Question 17

What is dynamic pricing?

Answer 17

Prices are higher when supply is lower and vice versa.

Question 18

Explain price comparison sites?

Answer 18

Retailers have had to adjust their pricing strategies to remain competitive in an online marketplace where customers can easily compare prices. Pricing has changed to reflect the rise in price comparison through the use of price-matching policies.