2.2 Marketing decisions Flashcards
What is penetration pricing?
Setting prices really low for a new product and when customers like the product, business raises price
What are the advantages of penetration pricing?
- Creates customer loyalty
- Develop long term profitability
- Low prices gain business more market share
What are the disadvantages of penetration pricing?
- Lower profit short term
- May be difficult to raise selling price
What is price skimming?
Products priced high to begin with as a desirability factor
What are the advantages of price skimming?
- Potential for high profits which can pay for research and development costs
- Reputation for quality
- Profits can be invested back in
What are the disadvantages of price skimming?
- Cannot last as long
- May slow down growth as can’t be purchased by everyone
What is competitive pricing?
Charging different pricing for the same goods or service depending on demand
What are the advantages of competitive pricing?
- Selling price competitive and will therefore attract customers
What are the disadvantages of competitive pricing?
- Business may need other ways to attract customers other than price
- Need to research competitors prices which would increase costs
What is cost plus pricing?
Setting a price by adding to relating costs in order to make a profit. Adding a mark up to total cost on each item
What are the advantages of cost plus pricing?
- Profit guaranteed on each item
What are the disadvantages of cost plus pricing?
- If mark up is set too high, price may be expensive compared to rivals
