(PAPER 3) 1.3.3 pricing strategies Flashcards
price definition
how much customers are charged for a product
penetration pricing definition
(for new products) low prices to enter the market and gain market share
price skimming definition
(for new products) charge high prices to enter the market and then lowers it over time.
cost plus pricing definition
(for existing products) involves deciding price by adding a desire percentage onto total cost/ unit
competitive pricing definition
(for existing products) changing a price at the market average or at a discount to the average price in market
predatory pricing definition
(for existing products) sets prices low enough to force a competitor out of business
psychological pricing definition
(for existing products) used to make fine-tuned decisions on the price of charge, prices are set just below major psychological levels e.g. £9.99 instead of £10
loss leader definition
(for existing products) making a loss on one product but charge a higher price on a related product e.g. printer ink
+&- of penetration pricing
+ high levels of sales should cover some of the development price
- customers might think it is low quality
+&- of price skimming
+ people presume they will get very high quality product
- people may not buy it if its too expensive
+&- of cost plus pricing
+ should guarantee a profit is made on each unit sold
- ignoring the market may mean an unrealistic price is generated
+&- of competitive pricing
+ should assure that price will not put customers off buying the product
- firms that use a competitive pricing strategy have little control over the price they charge thus the revenue they generate
+&- of predatory pricing
+ once a rival has been forced to close prices can be pushed up higher in the market
- if it can be proven to be specifically designed only to drive rivals out of the business
+&- of psychological pricing
+ this can help nudge customers into making a purchase by helping them to believe they are not spending £10 but £9.99 or £100 but £99.99
+&- of loss leader
+ higher profit margin on the related product- sold frequently
- make a loss on the main product
- brand image- cheap