Pricing Flashcards
What is price
The charged sum for a business’s product or service
Why is pricing important?
It’s the only element of the marketing mix that generates revenue
What are some of the factors that affect price (7)
- Cost of production
- Competitor price
- Consumer perception of value
- Business objectives
- Demand and Supply (elasticity)
- Target market segment
- Product lifestyle stage
What are the financial and non-financial objectives of pricing
Financial:
- Maximise profit
- Maximise revenue
- Improve cash flow
Non-Financial:
- Improve market share
- Beat/prevent competition
- Build a brand
Define pricing strategies
Long-term approaches to pricing products
What are the different pricing strategies for new (3) and established products (4)
New:
- Skimming
- Penetration pricing
- Cost-plus pricing
Established:
- Competitor pricing
- Prestige pricing
- Pre-emptive pricing
- Price discrimination
Describe cost-plus pricing and why is it useful
- Adding a percentage to the cost of the product
- Ensures a certain level of profit
- Easiest to implement
What is skimming and why is it useful
- High initial price then lowered
- Maximises short-term profits
- Recovers R&D costs quickly
What is penetration pricing and why is it useful
- Set low price to gain market share quickly
- Builds customer base
- Price raised later
What are the components of competitive pricing
Price taker: Charges market price
Price maker: Sets price based on strength
Price leader: Rivals follow their lead
Price follower: Follows market leader
What is prestige pricing and why is it useful
- High price to reinforce luxury image
- Price maintained through product life cycle
What is pre-emptive pricing and why is it useful
- Set low prices to deter market entry
- Useful in low barrier markets
- Limits competition
What is price discrimination and why is it useful
- Adjust prices to suit customer willingness
- E.g. by time, location, age
- Reduces risk
What are pricing tactics?
Short-term approaches a business can take towards price
What are the different pricing tactics (4)
- Predatory/Destroyer pricing
- Loss leaders
- Psychological pricing
- Promotional pricing and discounts
What is predatory pricing and why is it useful
Set very low prices to force out competitors
Suitable only for large businesses
Reduces competition
What are loss leaders and why are they useful
- One product priced low or at a loss
- Draws customers in to buy other products
What is psychological pricing
Influence customer perception by attractive pricing, e.g. £0.99
What is promotional pricing?
Using discounts and offers to temporarily boost sales
