2.2.2 Competing on price and 2.2.3 Types of non-price competition

Question 1

what are pricing strategies

Answer 1

• 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

Question 2

what do pricing strategies consider

Answer 2

• Competition?
• Competitive advantage of the product?
• Is the economy growing?

Question 3

types of pricing strategies

Answer 3

• cost plus pricing
• price skimming
• penetration pricing
• premium pricing
• predatory pricing
• competitive pricing
• psychological pricing

Question 4

cost plus pricing

Answer 4

Price decided by adding a fixed percentage profit to the cost

Question 5

price skimming

Answer 5

Charging a high initial price —> best for unique products

Question 6

penetration pricing

Answer 6

Setting a low price may persuade buyers to try the product → business can penetrate the market and gain market share

Question 7

premium pricing

Answer 7

Higher price than competition as it is seen as more desirable/of better quality

Question 8

predatory pricing

Answer 8

Setting price below costs to drive out competition → illegal in UK

Question 9

competitive pricing

Answer 9

Pricing based on competition

Question 10

psychological pricing

Answer 10

Rounded down to seem more appealing → £9.99 vs £10

Question 11

5 factors that determine the most appropriate pricing strategy

Answer 11

• amount of differentiation
• PED
• strength of brand
• stage in the product life cycle
• costs and need to make a profit

Question 12

amount of differentiation and pricing strategies

Answer 12

• Higher differentiation = higher price → skimming the market
• Little differentiation = relying on competitive pricing to beat rivals

Question 13

PED and pricing strategies

Answer 13

• Low PED will see premium pricing, inelastic
• Elastic = competitive pricing

Question 14

strength of brand and pricing strategies

Answer 14

Strong brand = inelastic D and premium pricing likely

Question 15

stage of the product life cycle and pricing strategies

Answer 15

• 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

Question 16

costs and the need to make a profit and pricing strategies

Answer 16

Cost plus pricing may work for small businesses, plumbers and decorators

Question 17

changes in price and social trends –> online sales

how has social media affected pricing

Answer 17

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

Question 18

non price competition

Answer 18

Involves quality, design branding, advertising, customer service, promotions, packaging, public relations etc → any way of attracting customer interest other than prices

Question 19

sales promotion

Answer 19

Refers to short term inducements to buy eg free offers and samples, competitions, some social media approaches

Question 20

impact of marketing on the demand curve

Answer 20

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

Question 21

businesses and market orientation

Answer 21

• 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

Question 22

types of non price competition (4)

Answer 22

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)