1.3.3 Pricing Stratergies Flashcards
What does price mean?
Price is the amount of money that the customer has to pay to receive the good or service
What are 6 different pricing stratergies?
Cost plus Price skimming Penetration Predatory Competitive Psychological
What is the Cost plus pricing stratergy?
Cost plus is when a percentage mark up is added to the cost of producing a good or service to calculate the selling price
Variable cost per unit + a proportion of total cost + a percentage markup
Using cost plus, what is the Selling Price?
VC per unit = £5.00
TC per unit = £10.00
Mark–up = 25%
Selling price = (£5.00 + £10.00) x 1.25 = £18.75
What is the Price Skimming pricing stratergy?
Price skimming involves setting a high initial price for a new product in order to recoup costs
What portion of the market does Price Skimming target?
Early Adpoters
What are Early adopters?
customers who must have the product as soon as it is launched and are prepared to pay high prices to get it
What is the Price penetration pricing stratergy?
Price penetration involves setting a low initial price for a new product in order to get a foothold in the market and gain market share
Usually used for a price elastic product
What is the aim of Price penetration?
The aim is to gain an early customer base
What is the “Predetory priceing” pricing stratergy?
Predatory pricing is when prices are set low for a short period of time to force competitors out of the market
What is Competitive pricing?
Prices are based on the prices charged by competitors, maybe the same or slightly lower, firms will try to compete on other aspects of the marketing mix
What is Psychological pricing?
Psychological pricing occurs when a firm sets a price for the product in order to entice the customer into making a purchase by making it sound cheaper than it actually is
ie £9.99 instead of £10.00
What are some factors that determine the most appropriate pricing strategy?
Ammount of differentiation PED Level of competitiveness in business environment Strength of the brand Stage in product lifestyle needs to make a profit
What are some changes in pricing stratergies to reflect social trends?
Online sales have led to the frequent use of dynamic pricing
Price comparison websites have forced prices to be lower as people will generally take the lowest priced option for the same thing
