Lecture 5 Flashcards
What is demand elasticity?
Degree to which demand responds to a change in an economic factor such as price.
What are the 5 different types of demand elasticity?
- perfectly inelastic demand
gas electricity water life saving medication - inelastic demand
cigarettes, rice, bread - unitary elastic demand (downward sloping curve)
- elastic demand
- perfectly elastic demand
What are the factors that determine elasticity?
- availability of substitutes
- cost of switching supplier
- brand loyalty
- degree of necessity
What is the goal of pricing strategies?
To maximise profits while considering consumers and market demand.
What is competition-based pricing? How do you implement it? When is it usable?
Focuses on existing market price for the product/service and uses competitors’ prices as benchmark, but doesn’t not take into account the cost or consumer demand. Implement by slightly below, same, or slightly above the competitors’ prices. It is adequate for businesses who want to compete in a highly saturated market and if a slight difference may be a deciding factor for the consumer.
What is cost-plus pricing strategy? How do you implement it? When is it usable?
Focuses on cost of producing product/service (cost of goods sold COGS) and adds a markup to that cost. It is typically used by retailers that sell physical products. It is not recommended by service-based companies because intangible assets are difficult to measure.
What is high-low pricing (discount pricing)? How to implement? When usable?
Initially selling a product at high price but lowering it when product drops in novelty or relevance. Implementation by special day discounts, seasonal sales. Common in retail firms that sell seasonal items or products influenced by trends.
What is skimming pricing strategy? How to implement? When usable?
Charging highest possible price for a new product and then lowering the price over time as product becomes less and less popular. Different from high-low, bc gradual decrease here. Adequate for tech products.
What is dynamic pricing (surge pricing, demand pricing, time-based pricing)? How to implement? When usable?
Flexible pricing strategy where price fluctuates based on market and customer demand. Implementation by applying algorithms or A/B test in real time. Adequate for companies with necessary tech infrastructure like hotels, airlines, event venues etc.)
What is freemium pricing? How to implement? When usable?
Offering basic version of a product hoping that uses will eventually pay to upgrade or access more features. Implementation by free trial, limited membership, ads. Adequate for service based companies or software providers, apps.
What is hourly pricing? How to implement? When usable?
Trading time for money. Implement by deciding labourers monthly wage into cost/h, could add another cost or mark up. Adequate for freelancers, contractors, consultants etc. But it penalises worker’s efficiency.
