3.4e Pricing Decisions Flashcards
How does penetration pricing work?
A low price is used to enter the market and build up loyalty, once consumers are loyal the price is raised.
When would penetration pricing work?
In highly competitive markets and when products lack differentiation
How does price skimming work?
High price is charges when a new product enters the market and price is lowered later
How does competitive pricing work?
Prices reflect what the competition is charging
How does predatory pricing work?
Businesses use deliberately low prices in order to put the competition out of business.
How does loss leader pricing work?
Product is sold below cost in order to attract customers to buy other products sold by the firm.
How does psychological pricing work?
Price is set at a price that seems psychologically lower than it is e.g. £1.99 instead of £2
What is psychological pricing also known as?
Odd number pricing
What does cost-plus pricing involve?
Price being set as the average cost of a product plus a sum to ensure a profit
Influences on pricing decisions
- Costs of product
- Competitors
- Target market
What type of pricing strategy can be used as an extension strategy?
Penetration pricing
Disadvantage of penetration pricing:
Customers may expect low price to continue, so it is difficult to raise it without losing customers
What is price discrimination?
When the company sells a product at different prices to different groups of consumers
