(PAPER 3) 1.3.3 pricing strategies Flashcards

1
Q

price definition

A

how much customers are charged for a product

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2
Q

penetration pricing definition

A

(for new products) low prices to enter the market and gain market share

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3
Q

price skimming definition

A

(for new products) charge high prices to enter the market and then lowers it over time.

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4
Q

cost plus pricing definition

A

(for existing products) involves deciding price by adding a desire percentage onto total cost/ unit

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5
Q

competitive pricing definition

A

(for existing products) changing a price at the market average or at a discount to the average price in market

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6
Q

predatory pricing definition

A

(for existing products) sets prices low enough to force a competitor out of business

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7
Q

psychological pricing definition

A

(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

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8
Q

loss leader definition

A

(for existing products) making a loss on one product but charge a higher price on a related product e.g. printer ink

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9
Q

+&- of penetration pricing

A

+ high levels of sales should cover some of the development price
- customers might think it is low quality

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10
Q

+&- of price skimming

A

+ people presume they will get very high quality product

- people may not buy it if its too expensive

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11
Q

+&- of cost plus pricing

A

+ should guarantee a profit is made on each unit sold

- ignoring the market may mean an unrealistic price is generated

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12
Q

+&- of competitive pricing

A

+ 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

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13
Q

+&- of predatory pricing

A

+ 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

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14
Q

+&- of psychological pricing

A

+ 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

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15
Q

+&- of loss leader

A

+ higher profit margin on the related product- sold frequently

  • make a loss on the main product
  • brand image- cheap
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16
Q

Factors determining the most appropriate pricing strategy for a particular situation

A
> differentiation and USP 
> price elasticity of demand 
> level of competition 
> strength of the brand 
> stage in the product life cycle 
> cost and need to make profit