3.3.2 Price Flashcards
What are the different types of pricing?
price skimming penetration pricing competitive pricing cost-plus pricing promotional pricing
What is ‘price skimming’?
Setting a high price for a new product that is unique or very different from any other product on the market
Advantages + disadvantages of price skimming
ads:
Profit earned is very high
Helps to recover research and development costs
disads:
Laws may have been placed to stop this
Backfire if competitors produce similar products at a lower price
What is ‘penetration pricing’?
Setting a low price to attract customers to buy a new product
Advantages + disadvantages of penetration pricing
ads:
Attracts customers more quickly
Can increase market share quickly
disads:
Cannot recover development costs quickly
Possible loss of revenue due to lower prices
What is ‘competitive pricing’?
Setting a price similar to that of competitor’s products which are already established in the market
Advantages + disadvantages of ‘competitive pricing’?
ads:
Business can compete on other things e.g. service
disads:
Still need to find ways of competing in order to attract sales
What is ‘cost-plus pricing’?
Setting price by adding a fixed amount to the cost of making or buying the product
Advantages + disadvantages of ‘cost-plus pricing’?
ads:
Quick + easy to work out price
Makes sure that price covers all costs
disads:
Price might be set higher than competitors/ more than customers are willing to pay, → reduces sales and profits
What is ‘promotional pricing’?
Setting price of a small number of products at below cost to attract customers into outlet in hope that they will buy other products priced to earn a profit
What is ‘price elasticity of demand’?
Measures by how much demand for a product changes when there is a change in price
What is ‘price inelastic demand’?
The percentage change demand is less than the percentage change in price. Products that are not very responsive to changes in price
What is ‘price elastic demand’?
The percentage change demand is greater than the percentage change in price. Products that are more responsive to changes in price
