chapter 17 price Flashcards
premium pricing strategy
high price strategy
charges a high price
perception with consumers that it’s a superior brand
brand and packaging tend to be luxurious
works well for Niche market that sells unique products
BMW car
price skimming strategy
high price strategy initial high price in introduction stage drops price as competitors enter the market used to recover R&D costs at the start goods are in high demand new iPhone
penetration pricing strategy
low price strategy charges a low price- making a loss ensures it’s lower than competitors increases market share brand awareness increases increases price special introductory offers SKY
price discrimination strategy
low price strategy charges different customers different prices can be based on consumer spending power cinema college students, kids, and adults
predatory pricing
• low pricing strategy • low prices • eliminate competition • price war • used by market leader occurs new entrant to market Ryanair
loss leader
low price strategy sells one product below cost price attract customers hoping for impulse buying increases sales and profits
cost plus pricing
cover costs
add on percentage profit
markup on cost
bundle pricing
sells its products at lower prices when bought together profit on each item is smaller total revenue increases encourages impulse buying McDonalds meals
psychological pricing
theory that certain prices have a greater impact on consumers
emotion overrides common sense
Sun holidays €400-€399
tiered pricing
offer similar goods
additional features that consumer chooses
target diff segments
cars- sun roof and leather seats
list factors that influence price
input costs competitors consumers legal regulations demand type of product stage product life cycle
factors that influence price
input costs
depends on economies of scale(size of operation), cost of raw materials, rents/wages(location can be a factor)
cost plus pricing
factors that influence price
competitors
pricing will position the product’s image against competitors in the market
penetration pricing and predatory pricing
factors that influence price
consumers
expectations of satisfaction and norms for consumers price discrimination
factors that influence price
legal regulations
tariffs, import costs, VAT, changes in exchange rates. All impact on price
factors that influence price
demand
if demand increases, companies may increase prices to match eg concerts
penetration pricing
factors that influence price
type of product
unique niche market
premium pricing
factors that influence price
stage in product life cycle
introduction stage
price skimming
fixed costs/FC
costs remain the same regardless of the level of production
rent
variable costs/VC
costs change depending on the level of production
the more you make the more VCs will be
labour
raw materials
total costs
TC=VC+FC
total revenue
TR is the total amt of money received from sales
TR= sales x selling price
break even point
cost=selling price no profit or loss made it’s the number of products a company must sell to break even fixed costs over (SP-VC) in units= BEP x SD
margin of safety
diff between your sales and margin of safety highlights how much sales can fall before you start to make a loss
margin of safety= sales-BEP
drawing a BE chart
1 calculate BEP 2 calculate profit 3 calculate margin of safety 4 label diagram 5 units- highest unit is max sales 6 € highest is highest sales 7 draw FC line 8 draw TR line (0 units, BEP units and sales units) 9 draw TC line (0 units, BEP units and sales units)
Y axis- costs and revenues
X axis- sales level
uses of BE charts
1 shows how many products must be sold to BE
2 shows profit/ loss at diff output levels
3 shows how a change in price will affect profits
4 shows how a change in costs will affect profits
5 shows how much you need to sell to make a specific profit
