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
Predatory pricing advantages and disadvantages
A- drive competitors out of the market, more sales
D- illegal, short term loss
Loss leaders advantages and disadvantages
A- gain increased sales and footfall
D- short term loss
What is dynamic pricing?
Setting flexible prices for products or services based on current market demands
Collusive behaviour
Two or more businesses discussing illegal market tactics for their benefit
Social trends affecting pricing strategy
Online sales (e.g online travel agencies)
- price changes frequently and quickly in response to changes in demand
- dynamic pricing is made possible by technology that tracks demand and levels of interest
Price comparison websites (e.g go compare)
- customers are able to access comparative information due to having sites such as go compare
