price

Question 1

price taker

Answer 1

• accepts the market price
• in line with competitors
• goods are undifferentiated

Question 2

price maker

Answer 2

• uses pricing strategies
  two groups:
  => market orientated
  => cost-based

Question 3

market orientated pricing

Answer 3

• produce what the market wants
• sets a price market is willing to accept

Question 4

cost based pricing

Answer 4

• concentrate on internal costs
• based around cost production

Question 5

market skimming

Answer 5

• MO
• 𝐜𝐡𝐚𝐫𝐢𝐧𝐠 𝐡𝐢𝐠𝐡 𝐩𝐫𝐢𝐜𝐞 => has USP => limited time
• profitable market at high price before wider market at low price
• gain as much revenue as possible
  𝘁𝗲𝗰𝗵 𝗮𝗱𝘃𝗮𝗻𝘁𝗮𝗴𝗲 - early adopters - purchase quickly
  => eg. iPhone - skims market
  𝗯𝗿𝗮𝗻𝗱 𝗶𝗺𝗮𝗴𝗲 𝗮𝗱𝘃𝗮𝗻𝘁𝗮𝗴𝗲 - top of market - protect & increase value
  => eg. Chanel, Armani

Question 6

penetration pricing

Answer 6

• MO
• 𝐩𝐫𝐢𝐜𝐢𝐧𝐠 𝐚𝐭 𝐚 𝐥𝐨𝐰 𝐥𝐞𝐯𝐞𝐥 - main objective to gain market share
• encourage to buy in large quantities
• must wait for MS to grow before raising price
  𝗮𝗱𝘃𝗮𝗻𝘁𝗮𝗴𝗲𝘀:
• establish brand loyalty
  𝗱𝗶𝘀𝗮𝗱𝘃𝗮𝗻𝘁𝗮𝗴𝗲𝘀:
• price too low => think its low quality => not purchase
• lose revenue

Question 7

going rate/competitive pricing

Answer 7

• MO
• 𝐬𝐞𝐥𝐥 𝐢𝐧 𝐥𝐢𝐧𝐞 𝐰𝐢𝐭𝐡 𝐜𝐨𝐦𝐩𝐞𝐭𝐢𝐭𝐨𝐫𝐬
• accepting market price - price taker
• similar price to market leader

Question 8

psychological pricing

Answer 8

• MO
• 𝐩𝐫𝐢𝐜𝐞 𝐬𝐞𝐭 𝐚𝐭 𝐰𝐡𝐚𝐭 𝐜𝐨𝐧𝐬𝐮𝐦𝐞𝐫𝐬 𝐞𝐱𝐩𝐞𝐜𝐭 𝐭𝐨 𝐩𝐚𝐲 => perceive they are receiving value from price paid
• convince customers to purchase => eg. £499
• other might not be convinced - no purchase
• reputation for quality - charge higher - reinforce image

Question 9

loss leader pricing

Answer 9

• MO
• 𝐬𝐞𝐥𝐥𝐢𝐧𝐠 𝐩𝐫𝐨𝐝𝐮𝐜𝐭𝐬 𝐚𝐭 𝐚 𝐥𝐨𝐬𝐬 => expect profit to generate elsewhere => make profit for business
• attracts customers
  => eg. 3 for 1 => word spreads

Question 10

destroyer/ predatory pricing

Answer 10

• MO
• 𝐩𝐫𝐢𝐜𝐞𝐬 𝐚𝐫𝐞 𝐥𝐨𝐰 𝐞𝐧𝐨𝐮𝐠𝐡 𝐭𝐨 𝐝𝐫𝐢𝐯𝐞 𝐜𝐨𝐦𝐩 𝐨𝐮𝐭 𝐨𝐟 𝐦𝐚𝐫𝐤𝐞𝐭
• large businesses & battle between locals
• anti-competitive => illegal !!

Question 11

cost plus pricing

Answer 11

• CB
• 𝐚𝐝𝐝𝐢𝐧𝐠 𝐚 𝐩𝐞𝐫𝐜𝐞𝐧𝐭𝐚𝐠𝐞 𝐩𝐫𝐨𝐟𝐢𝐭 𝐭𝐨 𝐩𝐫𝐨𝐝𝐮𝐜𝐭𝐢𝐨𝐧 𝐜𝐨𝐬𝐭 => eg. £1 + 40% profit = £1.40
  𝗮𝗱𝘃𝗮𝗻𝘁𝗮𝗴𝗲𝘀:
• changes in cost passed directly to buyer
• guaranteed profit on every sale
  𝗱𝗶𝘀𝗮𝗱𝘃𝗮𝗻𝘁𝗮𝗴𝗲𝘀:
• actions of comp => loss of sales/profits
• exporters => no allowance for currency changes

Question 12

contribution pricing

Answer 12

• CB
• 𝐛𝐚𝐬𝐞𝐝 𝐨𝐧 𝐯𝐚𝐫𝐢𝐚𝐛𝐥𝐞 𝐜𝐨𝐬𝐭𝐬 + 𝐜𝐨𝐧𝐭𝐫𝐢𝐛𝐮𝐭𝐢𝐨𝐧 𝐭𝐨𝐰𝐚𝐫𝐝𝐬 𝐨𝐯𝐞𝐫𝐡𝐞𝐚𝐝𝐬 & 𝐩𝐫𝐨𝐟𝐢𝐭𝐬
• gives flexibility
• orders accepted on a different contribution basis for different products

Question 13

advantages of getting right pricing strategy

Answer 13

• increase sales => increase revenue
• takes account of competitors actions
• applied to niche market
• reflect the market for the product

Question 14

disadvantages of getting right pricing strategy

Answer 14

• competitors follow strategy => no effect
• customers not attracted
• expensive advertising => unexpected profits
• not happy with strategy => boycott