1.3.3 pricing strategies

Question 1

price strategies when launching new product

Answer 1

price skimming - charge high price whn first launched , when product innovative, less competition, recover research and development costs
price penetration - charge low rpice for a short period of time to gain market share as alreadx competitiros in market

Question 2

advantages and disadvantages of price skimming

Answer 2

+ establish an up market image
+ harvest high profits from early buyers
+ get costs of research and development back
-cheaper imitations may appear sooner and take away sales
-customers put off by high price
-initial customers frustrated as price lowers as time goes by

Question 3

advantages and disadvantages of price penetration

Answer 3

+ Attracts customers rapidly by offering lower prices.
+ Discourages Competition
+ Builds Customer Loyalty
+ generates High Sales Volume –> high ecenomies of scale

-Brand Perception Risk – May create a low-quality image if prices are too low.
-Customers may leave when prices rise.
-Difficult to maintain low prices without financial strain

Question 4

long term pricing strategies

Answer 4

cost plus pricing - production cost plus percentage mark up that reflects profit level that company wants from product
+ Simple to calculate, ensures profit
- Ignores competition, may overprice products
competitive pricing - price set at marker level (when fiercly competitive market)
+ Matches market expectations, stays competitive
- May lead to low profits, hard to differentiate
predatory pricing - setting prices low enough to drive a rival out of business over large period of time
+ Eliminates competition, increases market share
- Illegal, unsustainable long-term

Question 5

short term pricing tactics

Answer 5

loss leaders price set deliberately low on certain items e.g. easter eggs before eater to get you in supermarket and buy complementary products
psychological pricing- price level seems lovel to consumer e.g. 9.99

Question 6

factors that determine the most appropriate pricing strategy for a particular situation

Answer 6

cost of production
competitos
costs and the need to make profit
price elasticity of demand
stage in product life cycle
differeantion usp
target market

Question 7

pricing strategies adapting to social trends

Answer 7

online sales !
dynamic pricing
auction sites
personall selling
subsciption pricess
comparison websites !