1.3.3 - Pricing Strategies Flashcards
What is cost-plus pricing?
Business calculates the cost of the product then adds a price markup
Features of Cost plus pricing
- Simple
- Commonly used by companies making standardised products
What is competitive pricing?
Pricing based on competitors prices
Why is competitive pricing used and why is it effective?
- Used to maintain market share
- Effective in highly competitive markets
What is Price Skimming?
Products initially priced high when they enter a market then gradually lowers price
Why is Price Skimming effective?
- Effective when entering a new market with high demand
- High price helps to develop and marketing costs
- Ensures sales continue
What is penetration pricing?
Business sets a low price for a new product when first introduced
Why is penetration price effective?
- Effective when a business wants to quickly gain market share and attract price-sensitive products
- Will raise price when they have enough customers
What is predatory pricing?
Business sets prices low to drive competitors out of the market
Why is predatory pricing illegal in some countries?
- Seen as anti-competitive market and harms customers by reducing choices
What is psychological pricing?
Takes into account the consumer’s emotions, beliefs and attitudes therefore setting the price at £9.99 over £10 to perceive better value
5 Factors determining the most appropriate pricing strategy
- Strength of Brand/ Level of differentiation
- Stronger the brand the higher the price can be charged - Stage in the Product Life Cycle
- Costs and need to make a profit
- Level of Competition
- Price Elasticity of Demand
How do online sales affect pricing strategies?
- 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)
How do price comparison sites affect pricing strategies?
- 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
