Ch 13 - price Flashcards
What are the 5 types of pricing strats
Competitive Penetration Promotional Price skimming Cost plus pricing
Adv of competitive pricing
Helps avoiding competition
Helps differtiate products
Avoids price competition
Disadv of competitive pricing
If the cost of production of one company is higher than the other, then competitively pricing a product could lead to less profit/not enough.
Hard to show the quality of the product
Detailed market research is required for competitive pricing - extra cost
What is the short time frame where penetrative pricing is used when a new product enters a market
interruption phase.
Adv of penetration pricing
Helps ensure the product enters the market
Helps gain market share initially
Disadv of penetration pricing
Profit per unit would be low initially
Can’t use penetrative pricing for a branded product
Which kind of products is price skimming used for
New, innovative, unique products
Adv of price skimming
Helps establish the product as a high quality product
High R&D Costs could be covered because of the high profits.
Disadv of price skimming
High price could discourage potential custoemrs fro buying it
Could encourage competitors to enter the market and set a lower price
Why would businesses use promotional pricing
Clear unwanted inventory
Extend product life cycle of the product
In which phase of the product life cycle is promotional pricing used generally
Saturation or decline stage
Adv of promotional pricing
Renew interest in the product
Clear unwanted inventory - generate at least some revenue with the unwanted inventory.
Disadv of promotional pricing
Less revenue and profit
Could lead to fierce price competition - which would eventually lead to it being unprofitable for the company to sell the product
Formula for cost of production per unit
total cost/output
aka average cost or unit cost
Adv of cost plus pricing
Each unit earns profit
Diff mark ups for diff markets
Easy to calculate - dont have to do much market research n allat
