1.3.3 Pricing strategies Flashcards
What is price skimming?
1
- Launching a brand new product at high price whilst unique, then lowering
What is price penetration?
1
- Launch product at v low price to, then raising it
Which pricing strategy should a firm with a new product and no clear rivals use and why?
1
- Skimming as ^demand
What are the advantages of price skimming?
3
- Desirable image for item
- Early adopters pay ^price for exclusivity
- Rapid profits (recover innovation costs)
What are the disadvantages of price skimming?
3
- Sales may be slow (rip off)
- Early buyers frustrated when price falls
- > Price = image suffers
What are the advantages of price penetration?
3
- ^Customer loyalty quick
- ^Distribution
- ^market share quick, >comp through predatory
What are the disadvantages of price penetration?
2
- Product image = perceived as cheap
- Price elasticity
What is cost plus pricing?
1
- Deciding price by adding desired % onto total costs per unit
What is the benefit and drawback of cost plus pricing?
2
- Guarantee profit on each unit sold
- Ignoring market = unrealistic price generated
When is cost plus pricing appropriate?
1
- Firm = market leader w no need to worry of comp
What is predatory pricing?
1
- Price low enough to force comp out of business
What is the benefit and drawback of predatory pricing?
2
- Once rivals forced to close = push prices^, ^margins
- Proved to only drive rivals out = illegal
What is competitive pricing?
1
- Price at market average or at discount to average
What is the drawback of competitive pricing?
1
- > Control over the price they charge, thus revenue also
Why may pricing online be more sensitive than on high street?
1
- Pricing lower as >fixed costs for online businesses
