Pricing decisions

Question 1

penetration pricing

Answer 1

set low initial price for product.
get foothold in market and gain market share.
gain early customer base, once product built up then raise prices.

Question 2

price skimming

Answer 2

set high initial price for new product-recoup costs.
targets “early adopters”. (must have mentality)
sell out of old products by dropping their prices.
once market “skimmed off” firm lowers prices.

Question 3

Dynamic pricing

Answer 3

Prices change frequently and quickly in response to changes in demand. Used when set capacity e.g airline-full capacity reached= raise prices.
made possible by technology that tracks demand & level of interest.(e.g monitors who is looking on website)
peak demand= prices up.

Question 4

Cost plus pricing

Answer 4

setting price by adding fixed amount/percentage to cost of making/buying product.
take cost off item and add profit margin.
covers businesses costs but may lead to uncompetitively priced items.
“mark-up pricing”.

Question 5

competitor based pricing

Answer 5

if there is strong competition in market customers are faced with wide choice of who to buy from.
“going rate”
brand loyalty & quality of good draws customers to it.
selling prices should be inline w rivals so price is not a competitive disadvantage.
business needs to find other way to attract customers e.g customer service.

Question 6

loss leader

Answer 6

short term strategy.
make staples cheap.
product priced below cost price to attract consumers.
Purpose is to encourage customers to make more purchases of profitable goods whilst in shop.
undercutting competitors on price- new customers attracted and exiting customers become more loyal.
some customers may “bulk buy”.
however only works to sell multiple products.