Marketing Mix: Price Flashcards
What is price?
The amount paid by the customer to the supplier when buying a good or service.
What are the 5 Pricing Strategies?
- Penetration Pricing
- Premium Pricing
- Cost-Plus Pricing
- Loss Leader Pricing
- Predatory Pricing
What is Penetration Pricing?
Low starting price, increases over time.
Benefit of Penetration Pricing.
Low price attract customers quickly.
Helps to quickly build market share.
Limitation of Penetration Pricing.
Low price is associated with low quality.
Only works in introduction stage of a product.
What is Premium Pricing?
Setting high starting price for new invention, new development of an old product, or unique product.
Benefit of Premium Pricing?
High price can create an image of high quality.
Research and Development cost are recovered.
High profit per product
Limitation of Premium Pricing.
High price -> low volume of sales
During bad economic times, people will buy necessities, not your product.
What is Cost-Plus Pricing Strategy?
Setting price by adding fixed amount to the cost of making or buying the product.
Benefit of Cost-Plus Pricing Strategy.
Easy to calculate price.
Applicable to most products.
Limitation of Cost-Plus Pricing Strategy.
Easy for competitors to undercut price by charging less.
What is Loss Leader Pricing?
Setting very low price where business earns nothing or even loses money, BUT a related product has high profit margin.
Examples of Loss Leader Pricing? (2)
HP loses money from selling printers, but earns from ink and paper.
Theatre loses money selling tickets, but earns from selling popcorn and soda.
Benefit of Loss Leader Pricing.
Low prices attract customers to the store where they buy related products.
Can be used to sell older stock or merchandise.
Limitation of Loss Leader Pricing.
It is not guaranteed that customers will buy related product.
What is Predatory Pricing?
Setting a low price with the intention to drive competitors out of business. UNETHICAL
Benefit of Predatory Pricing?
Low price attract customer.
Prevents new competitors from entering the industry.
Drives out existing competitors out of business.
Limitation of Predatory Pricing.
Illegal in many countries.
Competitors might place their products at a lower price, which leads to price wars.
What is Demand?
The quantity of goods and services consumers are willing & able to buy.
What does Price Elastic of Demand do?
Measure the responsiveness of demand following a change of price.
What is Price Elastic Demand?
Percentage change of demand is greater than percentage change in price.
If a product has Price Elastic Demand, _________.
Don’t raise price
Example of Price Elastic Demand.
Price of product rise by 5%, but sales fall by 15%.
What is Price Inelasticity Demand?
Percentage change in demand is less than percentage change in price.
If a product has Price Inelastic Demand, _________.
Can increase price.
Example of Price Inelastic Demand.
Price of oil rise by 15%, sales only drop for 5%
