Pricing

Question 1

There are different pricing methods/stratergies a company might use:

Answer 1

1. PRICE SKIMMING - very high introductory price - then lower price in time - eg Apple phones
2. PENETRATION PRICING - charge the lowest price possible - encourages customers to buy - eg cheap introduction offers by internet companies then they put up their prices later - build up large MARKET SHARE - disadvantage if the price is TOO LOW - LOW PROFITS
3. COMPETITIVE PRICING - set their prices TO MATCH THEIR COMPETITORS eg LOW PRICES or VALUE FOR MONEY
4. LOSS LEADER - sell their products as the price as the COST or even BELOW COST. So they are not making any profit. WHY - to ATTRACT customers to the store to buy other products that they will make a good profit. Might use this to sell off fruit that is at its sell by date
5. COST PLUS PRICING - a company works out its COST and then ADDS A CERTAIN amount to the price so the company will make a PROFIT

eg it could add additional % - this is called a markup

eg it could add an additional £ - this is called a profit margin

Question 2

Relationship between PRICE and DEMAND

Answer 2

As prices RISE - DEMAND decreases