price

Question 1

what is a price taker

Answer 1

• A business that has to accept the price set by the market.
• This is the only option under perfect competition.

Question 2

What are Market-Orientated Pricing Strategies?

Answer 2

Pricing strategies that focus on what the market is willing to accept. Businesses using this approach produce what the market wants and price accordingly.

Question 2

What is a “Price Maker”?

Answer 2

A business that has the opportunity to use pricing strategies because they are not bound by a perfectly competitive market.

Question 3

What are Cost-Based Pricing Strategies?

Answer 3

Pricing strategies that focus on the internal costs of production. Businesses using this approach are product-oriented.

Question 4

Define Penetration Pricing.

Answer 4

Pricing a product low to gain market share, encouraging large quantity purchases by retailers and consumers.

Question 4

Define Price Skimming.

Answer 4

Charging a high price for a product with a unique selling point (USP) for a limited time, targeting the most profitable segment first before lowering the price for a wider market.

Question 5

What are the advantages of Price Skimming?

Answer 5

• Capitalizes on product newness to maximize revenue/profit before competitors enter.
• Recovers high R&D costs quickly.
• Funds further investment in the product

Question 6

Define Loss Leader Pricing.

Answer 6

Selling products at a loss to attract customers and generate further sales of other, more profitable items. The goal is to recoup the initial loss and make an overall profit.

Question 6

What are the disadvantages of Penetration Pricing?

Answer 6

• Customers may perceive low price as low quality.
• May initially result in revenue loss.
• Not suitable for products with short life cycles.

Question 7

Define Going Rate Pricing.

Answer 7

Accepting the current market pricing structure, often used by smaller businesses that must align their prices with competitors.

Question 8

What is the main advantage of Penetration Pricing?

Answer 8

• It helps businesses seeking to gain a foothold in a market and increase market share.
• Can also build brand loyalty.

Question 9

Define Destroyer/Predatory Pricing.

Answer 9

Setting prices extremely low to drive competitors out of the market. This is often illegal due to its anti-competitive nature.

Question 10

What is the main issue with Destroyer/Predatory Pricing?

Answer 10

It is often seen as anti-competitive and is therefore illegal.

Question 11

Give examples of Loss Leader Pricing.

Answer 11

• Supermarkets discounting staple goods like bread or milk.
• Mobile phone companies offering “free” phones with contracts.

Question 12

Define Contribution Pricing.

Answer 12

Basing price on variable costs plus a contribution towards overheads and profits

Question 13

Define Cost Plus Pricing

Answer 13

Adding a profit percentage (mark-up) to the average cost of producing a good

Question 14

What is an advantage of Cost Plus Pricing?

Answer 14

• Simple to calculate and ensures every good is sold at a profit.
• gains back production cost

Question 15

What are the disadvantages of Cost Plus Pricing?

Answer 15

• Ignores competitors’ actions.
• Doesn’t account for currency fluctuations (for exporters).
• May not maximize profit if a higher price could be charged.

Question 16

Define Psychological Pricing

Answer 16

Setting prices at levels that consumers perceive as good value. This might involve setting prices just below a round number (e.g., £19.99 instead of £20).

Question 17

Give an example of Psychological Pricing.

Answer 17

• An example of psychological pricing is pricing a product at £9.99 instead of £10.00.
• This strategy makes the price appear lower than it actually is because customers often perceive it as being in the £9 range rather than £10, even though the difference is just one penny

Question 18

What are the advantages of using pricing strategies effectively?

Answer 18

• Increased sales, revenue, and profits.
• Targeting specific market segments.
• Reflecting the market (e.g., price skimming).
• Responding to competitors’ actions.

Question 19

What are the disadvantages of using pricing strategies?

Answer 19

• Competitors may follow the same strategy, negating its effect.
• Customers may not be attracted by the strategy.
• May require expensive advertising.
• Some segments may be unhappy with the pricing (e.g., price discrimination).

Question 20

What is the impact of pricing on the number of buyers?

Answer 20

• Too High Price: Fewer Buyers
• Priced Right: Optimal Number of Buyers
• Too Low Price: Too Many Buyers (potentially unsustainable)