Price - Marketing Flashcards
(17 cards)
What factors does a business have to consider before setting the price?
• Cost of buying or producing the product
• Amount of profit to be made
• Price charged by competitors
• Quality of the product
• Price target market will pay
• Government restrictions on pricing
Cost of buying or producing the product
the business will have to ensure that the price is
higher than the costs to buy or make the product to ensure that a profit is made on each
product sold.
Amount of product to be made
the business will price the product higher or lower depending on the level of profit it wishes to make on each product sold.
Price charged by competitors
the business needs to consider whether to match the price charged by competitors or choose a different pricing strategy to stand out from the crowd.
Quality of the product
the price set by the business must reflect the quality of the product. If the business charges a high price for a poor quality product, the customer will feel that they
have been ripped off.
Price target market will pay
the business must choose a price that is acceptable to their target market otherwise they will struggle to persuade customers to buy it.
Government restrictions on pricing
the government has legislation for specific products which restricts the minimum or maximum amount a business can charge for the product (such as the
minimum unit pricing on alcohol set by the Scottish Government)
What are some long term strategies of pricing?
-premium (high) pricing
-low price
-competitive pricing
-cost-plus pricing
What is premium (high) pricing?
A business will set the price of their product higher than that of their competitors. Premium pricing
is used to give consumers the perception of quality and luxury. To justify the high price, the business
must ensure their product is of high quality.
What is low pricing?
A business will set the price of their products lower than that of their competitors. Low price is effective in markets where there is little brand loyalty and customers place price above all other decision-making factors. However, some consumers will see low price as an indicator of poor quality and will be put off from buying the product
What is competitive pricing?
This strategy involves setting the price of the product at the same level as that of competitors. As there is no difference in competitive prices, businesses will then need to compete on other factors such as customer service and product quality to convince customers to buy from them.
What is cost-plus pricing?
A business first calculates the cost of making or buying one unit of the product. They then add a percentage mark-up to the cost price to calculate the selling price
What are some short-term pricing strategies?
-price skimming
-penetration pricing
-promotional pricing
-psychological pricing
What is price skimming?
The price is set high when the product is first launched. Once there are no customers left willing to
pay the initial high price, the price of the product is then gradually lowered over time. Price skimming
is most effective in markets where there is little to no competition.
What is penetration pricing?
The price is set low when the product is first launched. The aim of the low price is to attract customers away from competitors to buy the product. Once a customer base has been established, the business will gradually increase the price over time
What is promotional pricing?
A short-term reduction in the price of the product. It will be widely publicised and is used to generate
increased sales or to sell off outdated products.
What is psychological pricing?
A price is selected which makes the customer feel they are getting a much better deal than they actually are. When using this strategy, businesses will usually avoid rounding prices up to whole numbers
