Marketing Pricing Strategies Flashcards
What is price?
- money charged for a product or service
- everything that a customer had to give up in order to acquire a product or service
Financial objectives of price setting
- maximise profit
- achieve a target level of profits
- achieve a target rate of return
- maximise sales revenue
- improve cash flow
Marketing objectives of price setting
- maintain/ improve market share
- beat/ prevent competition
- beat/ prevent competition
- increase sales
- build a brand
Factors that influence a firms pricing strategy
- competitors (charge at any price with less competitors)
- USP (can charge more)
- production costs
- brand loyalty/ customer loyalty
- elasticity of demand (charge more if inelastic)
- profit margins
Cost plus pricing
Involves adding a certain percentage to the average total cost of the product
Price skimming
Means charging a very high initial price for the product
Competitive pricing
Meaning charging about the same as, or a little less than, the prices of competing products
Penetration pricing
Used to enter a new market. A lower price than the competition is set, to try and persuade customers of existing products to give the new product a try, in attempt to gain market share
Psychological pricing
Used to make the price seem more attractive than it is actually by rounding it down
Predatory pricing
Is a tactic used by a dominant business to reduce competition. Prices are set at a very low level, even below the costs of production. It is intended to drive competitors and new entrants out of the market.
Cost plus pricing advantages and disadvantages
A- always leads to profit per unit
D- doesn’t consider outside environment- competitors could price themselves lower
Price skimming advantages and disadvantages
A- initial high prices to help cover R&D costs, high prices help establish exclusivity and innovation
D- customers may be put off by high price, image/quality perception can be damaged once price drops occur
Competitive pricing advantages and disadvantages
A- reduction in price can lead to sales uplift and increased number customers
D- competitors could price themselves lower
Psychological pricing advantages and disadvantages
A- increased sales, don’t exceed price elastic consumer barriers
D- reduction in profit margin due to psychological gain
Penetration advantages and disadvantages
A- quick gain in market share, low prices will attract customers- potential to gain brand loyalty
D- originally setting price low can impact perceived quality/ brand reputation, competitors may reduce prices making it difficult to justify increasing yours
