marketing mix + strategy

Question 1

types of pricing strategies for new products

Answer 1

• price skimming: involves launching a new product at a high price while it is unique
• Price penetration: launching a new product at a low price to entice customers to try it

Question 2

advantages and disadvantages of price skimming

Answer 2

AD: high prices make the product appear desire-able, high prices generate rapid profits helping to cover the costs of innovation quick
DIS: may be seen as a rip off, early buyers may be annoyed once prices fall, image may suffer as prices fall

Question 3

advantages and disadvantages of price penetration

Answer 3

AD: low price encourages low risk sampling, low prices boost sales volume, high volumes may attract retailers - leading to increased distribution
DIS: product image may be seen as ‘cheap’, upmarket retailers may be unwilling to stock the product, likely to create price sensitivity among customers - high price elasticity

Question 4

Types of price strategies for existing products

Answer 4

• cost plus: adding a desired percentage onto total cost per unit
• predatory pricing: sets price low enough to force competitor out of business
• competitive: charging a price at the market average or at a discount of market average
• psychological: £10 vs £9.99

Question 5

advantages and disadvantages of cost plus pricing and when it is appropriate

Answer 5

ad: guarantee profit made on each unit sold
dis: ignoring the market could mean an unrealistic price is generated
appropriate: when a firm is a market leader, or little worry over competition

Question 6

advantages and disadvantages of predatory pricing

Answer 6

ben: once rival is forced out, prices can be pushed up
dis: it can be illegal

Question 7

advantages and disadvantages of competitive pricing

Answer 7

ben: should ensure prices will not put customers off the product
dis: firms have little control over the prices and therefore the revenue they generate

Question 8

advantages and disadvantages of psychological pricing

Answer 8

ad: helps nudge customers to purchase as they don’t think they are paying £10
dis: it may have little effect and might annoy customers

Question 9

factors that determine pricing strategies

Answer 9

• level of differentiation
• price elasticity of demand (the more elastic, the less control)
• level of competition
• strength of brand
• stage in product life cycle (the starting strategy tends to change once the product moves into maturity phase
• costs and need to make profit

Question 10

changes in price reflecting social trends

Answer 10

• online sales: prices may be lower as an online retailer as overall fixed costs to the business are lower, as well as consumers being able to compare prices
• price comparison sites: these sites push firms to use more competitive pricing as consumers may find better deals elsewhere.