3.14 - Pricing of a Product Flashcards
What are the different Pricing Methods?
Price Skimming Penetration Pricing Price Taking Predatory Pricing Loss Leader Pricing
Describe Price Skimming
Initially a high price is set to yield a high profit margin
Used to target early adopters - people who want to be among the first to purchase a new product
Describe Penetration Pricing
The pricing technique of setting a relatively low initial entry price/usually lower than the intended established price, to attract new customers
This strategy aims to encourage customers to switch to the new product
Describe Price Taking
A large firm sets the market price which smaller firms tend to follow
Example - Apple
Describe Predatory Pricing
A firm sets very low price to drive other firms out of the market
Describe Loss Leader Pricing
A product priced below cost-price in order to attract consumers into a shop or online-store
The use of loss leaders is a method of sales promotion
The purpose of making a product a loss leader is to encourage customers to make further purchase of profitable goods
What are the factors affecting price?
Cost of production/sales Customers willingness to pay (PED) Competitors Prices Anticipated profit margin Fashion Image of the product Customers ability to pay Niche or Mass Market B2C or B2B
How do you calculate Price?
Price = Cost of production/sales + profit
Describe Negotiating Price
B2B
Economies of Scale
