4.3b Price Flashcards
price definition:
A value that will purchase a finite quantity, weight, or other measure of a good or service.
Define the term ‘penetration pricing’
This is a pricing technique that involves setting a relatively low initial entry price, usually lower than the intended established price, to attract new customers
What are the six major pricing objectives?
maximise long-run profit maximise short-run profit increase sales volume (quantity) increase monetary sales increase market share obtain a target rate of return on investment (ROI) obtain a target rate of return on sales
what steps should you take before setting a price in a business?
1) Know the market
2) Choose the best pricing technique
3) Work out your costs
4) Consider cost-plus pricing
5) Set a value-based price
How do you calculate cost?
You can calculate the unit costs of production by dividing the total amount of your fixed and variable costs by the total number of units you produced.
What is meant by price skimming?
This involves setting a high price for a new advanced product before other competitors come into the market
How can a business work out what price to charge?
1) market research- asking likely customers what price they’d be willing to pay
2) one-off pricing- sole trader the business is specialised and the owner has to work out the price for herself/himself
Why is price important in a business?
Price is important to marketers because it represents marketers’ assessment of the value customers see in the product or service and are willing to pay for a product or service.
What is economy pricing?
It is used by a wide range of businesses including generic food suppliers and discount retailers, economy pricing aims to attract the most price-conscious of consumers.
what are some examples of non-price competition strategies?
heavy marketing, loyalty cards, good sales information, after sales service, opening hours, product guarantees etc
How does the price you set affect your profit margins?
The price you set affects your profit margin per unit sold, with higher prices giving you a higher profit per item if you don’t lose sales. However, higher prices that lead to lower sales volumes can decrease, or wipe out, your profits, as your overhead costs per unit increase as you sell fewer units.
Hoes does the price you set affect the sales volume?
Increasing your prices might lower your sales volume only slightly, helping you make up for decreased volume with higher total profits generated by higher margins. Lowering your prices can increase your profits if your sales jump significantly, decreasing your overhead expense per unit.
What is predatory pricing?
It is the practice of selling a product or service below cost for the specific purpose of taking market share away from a competitor or closing it down, then raising prices on consumers when they have fewer, or no options after that competitor is gone. This is illegal.
