Price Flashcards
What are the 8 pricing strategies?
Cost plus
Competitive
Skimming
Penetration
Price discrimination
Destroyer/predatory
Loss leader
Psychological
What is cost plus pricing?
The business calculates the unit cot of a product and then adds a percentage mark-up for profit e.g. it cots PC World £300 to purchase a laptop which they then mark up by 50% and sell to the customer for £450.
What are the advantages of cost plus pricing?
A quick and easy way of setting the selling price.
Ensures that total costs are covered and a profit is generated.
What are the disadvantages of cost plus pricing?
Doesn’t cover indirect costs e.g. other expenses such as rent.
Doesn’t take external factors into account e.g. increasing prices during boom periods to maximise profits.
What is competitive pricing?
The price of a product is set similar to the competitors e.g. fuel prices.
What are the advantages of competitive pricing?
Avoids a price war.
Encourages competition, which improves the market as a whole.
What are the disadvantages of competitive pricing?
Other elements of the marketing mix must be better than the competition’s to ensure sales.
What is price skimming?
The price is set high to begin with and lowers over time e.g. with electronics, such as the iPad, PS4 etc.
What are the advantages of price skimming?
Sufficient ‘hype’ around a new product enables higher prices to be charged, which can increase profits.
Lack of competition also allows maximum prices to be charged.
What are the disadvantages of price skimming?
High initial prices can put off some customers.
Technique results in low initial sales numbers.
What is penetration pricing?
The price is set lo to begin with and increases over time e.g. ‘trial prices’ on new chocolate bars.
What are the advantages of penetration pricing?
Encourages customers to try a new product.
The business hopes to gain repeat custom once the price rises.
What are the disadvantages of penetration pricing?
Very little profit can be generated during the initial low price period.
Could result in a price war if competitors set lower prices too.
What is price discrimination?
Prices are altered depending on a discriminating factor e.g. different prices are often charged in the transport industries depending on age, such as child price, adult price and senior citizen price.
What are the advantages of price discrimination?
Ensures products appeal to different market segments.
Allows for high profit margins on some price brackets.