Edexcel-pricing strategies 1.3 Flashcards
price
Money charged for a product or service.
Mark up
Popular method of cost based pricing
Ratio between costs of goods and selling price
Expressed as percentage
Adv of cost to influence pricing
Easy to calculate
Price increases justified when costs rise
Managers confident each product has profit
Dis of cost to influence pricing
Ignores price elasticity demand
May not take account competition
Profits lost if price set below what customer wants
Price skimming
set products to high prices
Price skimming objective
Maximise profit to achieve recovery of costs
Price penetration
Offer product at low inductory price
price penetration aims
Gain market share so they can put product to a normal price
Build customer loyalty
Build sales of high priced items
Predatory pricing
Dominant undertaking incurs losses with hopes of removing potential competitors
Price wars/ competitive pricing
Competitive price reduction by firms in competitive industry
Psychological pricing
change prices to end 99p so perceived as cheaper
Loss leader
A product predominantly displayed and advertised as below normal price and cost to seller.
Loss leader aims
Encourage people to buy complementary goods at full price
Dynamic marketing
Pricing strategy where businesses set flexible prices for products or services based on current market demands.
Dynamic marketing eg
Taxis
Holidays
predatory pricing aims
Seek to increase market share
Good for customers short term but long term all competitors removed
price wars/ competitive pricing effect
may seem good to consumers in short run but is harmful if all competitors are removed
Premium pricing
When goods are sold at high prices
Tend to have ups to sell at these prices.
Benefits of dynamic marketing
Maximise profits
Get rid of unsold stock
Treats customers more individually
Online sales
Businesses sell products and services online.
Online sales advantages
Convenience as accessible 24/7
Reach new markets
Online sales disadvantages
Lots of competition
Can be complicated
Price comparison sites
Used to compare products based on price, features and reviews.
Price comparison sites advantages
Keep up to date with prices
Find out what different competitors are selling
Price comparison sites disadvantages
Loose consumers if they are not the cheapest business.
Other competitors can find out all their information
Cost plus
cost + profit wanted to be made
Factors to consider when choosing a price strategy
Number of USPS
Level of competition
PED
Number of USPS
Can demand higher prices if lots of unique selling points.
Level of competition
Highly competitive markets may need low prices whereas less competitive markets can charge higher prices.
PED
Businesses should set lower prices if product is elastic. Businesses should set high prices if products price inelastic.
Markup
gross profit/ cost of goods sold x 100
