2.2.2 Competing on price and 2.2.3 Types of non-price competition Flashcards
what are pricing strategies
- The way in which a business decides upon the price of its product or service
- Depends on position in market: market leader can have a higher charge and rely on brand loyalty, but newer firm needs to be competitive
what do pricing strategies consider
- Competition?
- Competitive advantage of the product?
- Is the economy growing?
types of pricing strategies
- cost plus pricing
- price skimming
- penetration pricing
- premium pricing
- predatory pricing
- competitive pricing
- psychological pricing
cost plus pricing
Price decided by adding a fixed percentage profit to the cost
price skimming
Charging a high initial price —> best for unique products
penetration pricing
Setting a low price may persuade buyers to try the product → business can penetrate the market and gain market share
premium pricing
Higher price than competition as it is seen as more desirable/of better quality
predatory pricing
Setting price below costs to drive out competition → illegal in UK
competitive pricing
Pricing based on competition
psychological pricing
Rounded down to seem more appealing → £9.99 vs £10
5 factors that determine the most appropriate pricing strategy
- amount of differentiation
- PED
- strength of brand
- stage in the product life cycle
- costs and need to make a profit
amount of differentiation and pricing strategies
- Higher differentiation = higher price → skimming the market
- Little differentiation = relying on competitive pricing to beat rivals
PED and pricing strategies
- Low PED will see premium pricing, inelastic
- Elastic = competitive pricing
strength of brand and pricing strategies
Strong brand = inelastic D and premium pricing likely
stage of the product life cycle and pricing strategies
- Introduction: penetration/competitive if new in market
- If innovative, can have high initial demand
- Growth and maturity = competitive pricing likely
- Decline = prices reduced to sell remaining stock
costs and the need to make a profit and pricing strategies
Cost plus pricing may work for small businesses, plumbers and decorators
changes in price and social trends –> online sales
how has social media affected pricing
Social trends have tended to intensify competition
- Some products have become cheaper because they are distributed more efficiently on-line than in traditional retail outlets
- Many online retailers look for profits by cutting costs and operating efficiently rather than raising prices
- Information is easier to obtain through price comparison sites and consumer publications, web searches etc
Benefits are confined to markets for household appliances, books, energy
non price competition
Involves quality, design branding, advertising, customer service, promotions, packaging, public relations etc → any way of attracting customer interest other than prices
sales promotion
Refers to short term inducements to buy eg free offers and samples, competitions, some social media approaches
impact of marketing on the demand curve
Marketing has two main functions in relation to the demand curve to shift
- Shift right: each product’s demand increases
- Reduced PED, which steepens the demand curve
businesses and market orientation
- Businesses have a culture of market orientation → match product development plan to meet the needs of their customers
- Product differentiation: goods and services will be as distinct and different as possible from the competition
- Differentiated products are more price inelastic so price can be increased without harming sales too much
types of non price competition (4)
Product innovation and development: tech change can offer rich rewards to businesses due to R and D; products can be new or redesigned
Advertising and sales promotions: convince consumer that specific products are more attractive and acceptable than competing substitutes; ads can be informative or persuasive or both and can be adapted to suit the nature of the product and the market
Distribution methods: can be used to attract specific market segments → online busy people vs retail therapy
Devising appropriate marketing: selecting a range of strategies that will work together to promote the product → fit the package to the nature of the product and the target market (magazines, social media, separate plans for individual markets)
