Price (Marketing Mix) Flashcards
Types of pricing strategies
Price skimming
Price penetration
Cost plus pricing
Competitive pricing
Price skimming
When you price higher initially and it lowers over time
Price penetration
When a business tries to increase market share by lowering its price
Cost plus pricing
The cost of manufacturing the product plus a profit mark-up
Competitive pricing
When a product is priced in line or just below competitors’ prices (to try to capture more of the market)
What determines a price
Costs
Product life cycle
Degree of competition
Quality of the product
Advantages of price skimming
Maximise revenue
Covers fixed cost quickly
Your product is seemed higher quality
Disadvantages of price skimming
Slower sales
People may think its to high
Competitiors may sell for cheaper
Advantages of price penetration
Increases market share
Attracts customers
Switches customers from competitors
Disadvantages of price penetration
Your product may seem low quality
Short term profits
Risky if customers have brand loyalty to your competitors
Customers may get used to the low prices, harder to set higher prices in the future
Advantages of cost plus pricing
Easily can cover costs
Easy to work out and use
Disadvantages of cost plus pricing
Ignores market conditions and customers wants
Competitors may have lower prices
Advantages of competitive pricing
Have on edge over your competitors, increase market share
Disadvantages of competitive pricing
Ignores customers
you might risk selling at loss
Risky if customers have brand loyalty
Pricing is not unique
Promotional pricing
When a product is sold at a low price for a short period of time to increase short term sales
Dynamic pricing
When business change product prices depending on the level of demand
Price elastic demand
When consumers are very sensitive to changes in prices and the percentage change of products demanded/bought is greater than the percentage change in price
eg: prices increase by 5% then sales decrease by 15% = falling revenue for the business
This usually happens when the product is common on the market so consumers can easily buy a cheaper version of it (eg: chocolate bars)
Therefore its better to decrease prices to increase revenue
Price inelastic demand
Where consumers are not sensitive to changes in the prices
The percentage change in quanity demanded/bought is less than the percentage change in price
Prices increase by 15% then sales decrease by 5% = increase revenue for the business
This usually happens to products that are not common on the market (have less competitors) so consumers cant really chose a cheap option and it may be just easier if they stick to buying the product
Therefore its better to increase prices to increase revenue