price

Question 1

pricing strategies

Answer 1

• Cost-based (cost plus)
• Skimming
• Penetration
• Price discrimination
• Destroyer/predatory(an illegal practice)
• Loss leaders
• Promotional
• Psychological

Question 2

penetration pricing

Answer 2

• A price lower than that of competitors is set to tempt customers away from competitors.
• Once the product becomes
  popular the price will be raised in line with competitors

Question 3

destroyer pricing

Answer 3

• Prices are lowered in order to force competitors to lower their prices.
• Weak competition will not be able
  to survive for a prolonged period of time and may be forced to leave the market.
• Prices will then return to the normal level or even increase to a higher level.

Question 4

promotional pricing

Answer 4

• Prices are reduced for a short period of time.
• Consumer interest may increase during
  this period and stock levels may reduce quickly.

Question 5

psychological pricing

Answer 5

• The price charged makes the customer think that the product is cheaper than it actually is, eg charging 99p instead of £1.
• This will attract customers who buy on impulse, will make customers think they are getting better value for money

Question 6

loss leaders

Answer 6

• A range of products are advertised at a low, unprofitable price which will encourage customers to enter the store over competitors’ stores.
• Customers will often purchase other full priced products whilst in the store, so a profit will be made on the total purchases made.

Question 7

price discrimination

Answer 7

Different prices are charged for the same product/service at different times of the day, month, or year.

Question 8

market skimming

Answer 8

An initial high price is charged for the product
* As competition in the market increases, the
price will fall to be in line with competitors.
* people will pay high price for the privilege this
can allow a higher profit margin
* Lack of competition also allows maximum prices
to be charged
* High initial prices can put off some customers
* customers that purchased the product early at a
high price may become dissatisfied as the price is later lowered

Question 9

cost based (costplus)

Answer 9

This method of pricing is based on calculating the cost of producing the item and then adding on the percentage profit required by the company
* This method of pricing makes sure that all
production costs are covered, although it does not consider any external factors such as the competitors pricing or the economic climate