Chapter 13 Flashcards
Competitive pricing
Priced in line or just below competitors prices to capture more market
Penetration pricing
Set lower than competitors to enter a new market
Price skimming
Where a high price is set for a new product
Promotional pricing
When a product is sold at a very low price for a short time
Dynamic pricing
When businesses change product prices, usually when selling online online, depending on the level of demand
Price elastic demand
When customers are very sensitive to changes in price
Price inelastic demand
Customers are not sensitive to changes in price
Role of pricing in the marketing mix
The price must fit in with the rest of the marketing mix, can’t be too expensive for a cheap product and must be able to compete with competitors
Why businesses adopt new pricing strategies (4)
To try break into new markets
To increase market share
To increase profits
To make sure all costs are covered and a target profit is earned
Main methods of pricing (7)
Psychological
Cost-plus
Penetration
Dynamic pricing
Price skimming
Promotional pricing
Competitive pricing
Cost-plus pricing
Cost of manufacturing the product plus a profit mark-up
Involves estimating the how many units will be produced, calculating the cost and adding a percentage mark-up for profit
Benefits of cost plus pricing(3)
Easy to apply
Different profit markups can be used for different markets
Each product earns a profit for the business
Limitations of cost plus pricing (3)
Business could lose sales if selling price is higher than competitors
Total profit only made if sufficient units of the product are sold
No incentive to reduce costs-increase is just passed on to the customer as a higher price
Benefits of competitive pricing (3)
Sales likely to be high as the price is reasonable
Avoids price competition which reduces profits for all businesses in the industry
Can be used when it’s difficult for customers to tell the difference between the products of different businesses
Limitations of competitive pricing (3)
If costs for a business is higher than its competitors it leads to losses
Higher quality product will need to be sold at a higher price than competitors to give it a better image
Expensive research needs to be conducted to decide what the price should be
Benefits of penetration pricing (3)
Used for newly launched products as it creates an impact with customers
Should ensure sales are made and that the product enters the market successfully
Market share should build up quickly
Limitations of penetration pricing (3)
Product sold at a low price, means profit may e low
Customers may get used to the low prices and reject the product if the business raises prices later
Might not be appropriate for a branded product with a reputation for quality
Price skimming benefits (3)
Helps to establish the product as having good quality
Costs can be covered easily from the profit
If the product is unique, high price leads to high profits being made before competitors launch similar products
Price skimming limitations (2)
High price may discourage potential customers from purchasing
High price + profitably may encourage more competitors to enter the market
Promotional pricing benefits (2)
Useful for getting rid of unwanted inventory that won’t sell
Helps to renew interest in a product if sales are falling
Promotional pricing limitations (2)
Revenue will be lower because the price on each item will be reduced
Might lead to a price competition with competitors, forcing them to reduce prices even further
Psychological impacts of product pricing (4)
High price + quality - high income purchase it as a status symbol
Price set just below a whole number - appears cheaper
Supermarkets charge low prices for commonly bought items to make it seem like a good value for money
If the price enforces the customers perception of the product, repeat sales will be made
What should a business do if the products are price elastic, what does it mean
They should not raise the price unless there are rising costs
There are many close substitution that consumers will flock to if the price is raised
