1.3.3 PRICING STRATEGIES Flashcards
whats costs plus pricing
cover the cost then add as much profit as desired
whats competitive pricing
copying competitors prices so customers consider other factors
whats price skimming
prices start high to exploit loyalty and drop over time
whats penetration pricing
start low to attract customers then increase prices over time
whats predatory pricing
price so low it kills small competition (its illegal in many countries)
whats psychological pricing
trick customers into thinking the deal is better
advantages of cost plus
- easy to calculate
- ensures all costs are covered
- provides a predictable structure
- offers transparency to customers
disadvantages of cost plus
- doesn’t consider market demand or competition
- may not optimise profits
- limited flexibility to responding to change
- potential for inaccurate pricing
advantages of competitive pricing
- potential increase market share
- attracts an increase in customers
- maintains relevance
- prevention of price wars
disadvantages of competitive pricing
- lower profit margins
- lack of price flexibility
- difficulty in gaining competitive advantage
- dependancy on competitors
advantages of price skimming
- allows maximum revenue
- creates premium perception
- competitive advantage
- generates high initial profits
advantages of penetration pricing
- stimulates demand and increases sales
- sets a foundation for loyalty
- helps in quickly gaining market share
- attracts price sensitive customers
disadvantages of penetration pricing
- associations of lower quality may be made
- could impact brand perception
- rivals may engage in price wars
- lower profit margins
advantages of predatory pricing
- can lead to market dominance
- increased market share
- discourages new competitors
- potential long term goals
disadvantages of predatory pricing
- often illegal and can bring legal issues
- may experience significant financial loss
-reputation damage - can disrupt market (price wars)
advantages of phycological pricing
- attracts price sensitive customers
- encourages impulsive buys
- enhance brand image
- customer engagement
disadvantages of phycological pricing
- perception of lower quality
- some may view as manipulative
- can be challenging and time consuming
- may lead to profit margins being lower
what to consider when choosing a pricing strategy
- consumer income
- market demand
- pricing strategies of competitors
- costs of production, marketing and overhead expenses
- profit aims and objectives
- amount of brand loyalty
disadvantages of price skimming
- 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
advantages of penetration pricing
- 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
disadvantages of penetration pricing
- 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.
