3.4 Marketing Mix : Price Flashcards
Pricing Strategies
Charging appropriate price for products
To:
Break into a new market
Increase market share
Increase profits
Ensure costs all covered
Competitive Pricing w adv and disadv
Pricing strategy where you set prices in line with competition or just below
Adv
More people will buy
Prevents losing market share
Disadv
Customers might pay the higher price depending on brand and quality
May not cover costs
Takes time and money to find out competitors prices
Cost-Plus Pricing w adv and disadv
Pricing strategy where you estimate the cost of production and add a percentage mark-up for each item sold
Adv
Easy to apply
Profit mark-ups can be applies in different markets
Each product sold earns profit
Disadv
Less sales if price too high
Profit only made when sufficient units sold
No incentive to reduce costs
Price Skimming w adv and disadv
Price strategy where you set prices high since products are (usually) a new invention/different to others
Adv
Image of good quality
Recover production costs faster
Break-even at lower output
Disadv
Customers put off based on price
Prices only high for short term due to new competitors
Penetration Pricing w adv and disadv
Pricing strategy where you set prices lower than competitors prices
Adv
Attracts customers
Builds market share
Disadv
Customers get used to low prices so cannot change to high
May not be appropriate for product (luxuriousness)
Promotional pricing w adv and disadv
Pricing strategy when businesses lower price for set amount of time to increase short-term sales
Adv
gets rid of unwanted inventory
Gains market share
Renew interest in a product
Disadv
Lowered revenue due to lower price
Competitors may adapt the same strategy
Price elasticity of demand
Responsiveness in quantity demanded in a change in price
Products are either elastic or inelastic demand (or in between)
Factors that affect Pricing Strategy
New vs Existing product
Uniqueness
Competition levels
Brand image and quality
Marketing objectives
Price Elastic Demand
Consumers are sensitive to changes in price
If the price of the product gets increased, they will lose demand and make less money
E.g. Snacks, airline tickets, books, cars, concert tickets
Price Inelastic Demand
Consumers are not sensitive to changes in price
If the price of the product gets increased, they won’t lose demand and will make more money (usually because of the dependance on the product)
E.g. Gas for cars, Rice (for asia), Electricity bills, cigarettes (addictive), medication if needed
Demand and factors affecting it
Willingness and ability of consumers to buy a good or service at prices
Factors affecting demand:
Changes in the prices of other products
Substitutes products prices getting higher makes demand of the product will go up as they can choose it over the one that increased in price
Complementary products prices getting higher makes demand of the product go down as they often are bought together
Changes in tastes, preferences, or fashions
Changes in people’s income
Advertising
Law of demand
If price rises demand falls
Because people cannot afford to buy the same quantity with same money
Lower quantities produced (more unique and rare) → higher prices
Higher quantities produced → lower prices
