1.3.3 PRICING STRATEGIES

Question 1

whats costs plus pricing

Answer 1

cover the cost then add as much profit as desired

Question 2

whats competitive pricing

Answer 2

copying competitors prices so customers consider other factors

Question 3

whats price skimming

Answer 3

prices start high to exploit loyalty and drop over time

Question 4

whats penetration pricing

Answer 4

start low to attract customers then increase prices over time

Question 5

whats predatory pricing

Answer 5

price so low it kills small competition (its illegal in many countries)

Question 6

whats psychological pricing

Answer 6

trick customers into thinking the deal is better

Question 7

advantages of cost plus

Answer 7

• easy to calculate
• ensures all costs are covered
• provides a predictable structure
• offers transparency to customers

Question 8

disadvantages of cost plus

Answer 8

• doesn’t consider market demand or competition
• may not optimise profits
• limited flexibility to responding to change
• potential for inaccurate pricing

Question 9

advantages of competitive pricing

Answer 9

• potential increase market share
• attracts an increase in customers
• maintains relevance
• prevention of price wars

Question 10

disadvantages of competitive pricing

Answer 10

• lower profit margins
• lack of price flexibility
• difficulty in gaining competitive advantage
• dependancy on competitors

Question 11

advantages of price skimming

Answer 11

• allows maximum revenue
• creates premium perception
• competitive advantage
• generates high initial profits

Question 12

advantages of penetration pricing

Answer 12

• stimulates demand and increases sales
• sets a foundation for loyalty
• helps in quickly gaining market share
• attracts price sensitive customers

Question 13

disadvantages of penetration pricing

Answer 13

• associations of lower quality may be made
• could impact brand perception
• rivals may engage in price wars
• lower profit margins

Question 14

advantages of predatory pricing

Answer 14

• can lead to market dominance
• increased market share
• discourages new competitors
• potential long term goals

Question 15

disadvantages of predatory pricing

Answer 15

• often illegal and can bring legal issues
• may experience significant financial loss
  -reputation damage
• can disrupt market (price wars)

Question 16

advantages of phycological pricing

Answer 16

• attracts price sensitive customers
• encourages impulsive buys
• enhance brand image
• customer engagement

Question 17

disadvantages of phycological pricing

Answer 17

• perception of lower quality
• some may view as manipulative
• can be challenging and time consuming
• may lead to profit margins being lower

Question 18

what to consider when choosing a pricing strategy

Answer 18

• consumer income
• market demand
• pricing strategies of competitors
• costs of production, marketing and overhead expenses
• profit aims and objectives
• amount of brand loyalty

Question 19

disadvantages of price skimming

Answer 19

• High initial prices can deter price-sensitive customers
• Competitors may quickly enter the market with lower-priced alternatives
• Initial sales volumes may be lower than expected
• If consumers perceive the product as overpriced, it may harm the brand’s reputation

Question 20

advantages of penetration pricing

Answer 20

• the low price can attract a large number of customers quickly
• may develop brand loyalty due to the perceived value
• low price can deter potential competitors from entering the market
• Higher sales volumes can lead to economies of scale

Question 21

disadvantages of penetration pricing

Answer 21

• can lead to reduced profit margins
• may perceive the product as lower quality
• Maintaining low prices may not be sustainable in the long run, especially if production costs increase.
• Customers may come to expect low prices, making it difficult to introduce new products at higher price points.