1.3.3 - Pricing Strategies Flashcards

1
Q

What is cost-plus pricing?

A

Business calculates the cost of the product then adds a price markup

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2
Q

Features of Cost plus pricing

A
  • Simple
  • Commonly used by companies making standardised products
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3
Q

What is competitive pricing?

A

Pricing based on competitors prices

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4
Q

Why is competitive pricing used and why is it effective?

A
  • Used to maintain market share
  • Effective in highly competitive markets
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5
Q

What is Price Skimming?

A

Products initially priced high when they enter a market then gradually lowers price

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6
Q

Why is Price Skimming effective?

A
  • Effective when entering a new market with high demand
  • High price helps to develop and marketing costs
  • Ensures sales continue
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7
Q

What is penetration pricing?

A

Business sets a low price for a new product when first introduced

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8
Q

Why is penetration price effective?

A
  • Effective when a business wants to quickly gain market share and attract price-sensitive products
  • Will raise price when they have enough customers
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9
Q

What is predatory pricing?

A

Business sets prices low to drive competitors out of the market

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10
Q

Why is predatory pricing illegal in some countries?

A
  • Seen as anti-competitive market and harms customers by reducing choices
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11
Q

What is psychological pricing?

A

Takes into account the consumer’s emotions, beliefs and attitudes therefore setting the price at £9.99 over £10 to perceive better value

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12
Q

5 Factors determining the most appropriate pricing strategy

A
  1. Strength of Brand/ Level of differentiation
    - Stronger the brand the higher the price can be charged
  2. Stage in the Product Life Cycle
  3. Costs and need to make a profit
  4. Level of Competition
  5. Price Elasticity of Demand
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13
Q

How do online sales affect pricing strategies?

A
  • Online sales offer 24/7 accessibility and convenience
  • Can adjust pricing in real-time based on demand/competition etc
  • Also may offer cheaper online than physical to require fewer physical stores (reduces costs)
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14
Q

How do price comparison sites affect pricing strategies?

A
  • Have to adjust to remain competitive
  • Retailers can offer to match competitors prices to prevent them swapping
  • Also can use pricing algorithms to adjust prices automatically
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