Pricing Strategies Flashcards
Promotional pricing
A reduction in price to attract customers to an existing product or to sell off old products
E.g buy one get one free
Advantages of promotional pricing
Attracts customers into stores
Break loyalties with other brands
Encourages customers to buy more
Disadvantages of promotional pricing
Customers may get used to promotions and not buy at full price anymore
Can lead to stock not being available for customers who usually pay full price
Price skimming
Where a product is more advanced than that of competitors, and therefore a price is set high because customers are willing to pay higher prices to own that product.
After a period of time the price will be reduced
Advantages of price skimming
Helps to build a reputation for high quality products
Potential for high sales revenue
Disadvantages of price skimming
In the long term, competitors will enter the market and apply pricing pressure
May lead to slow sales volume
Cost plus pricing
Adding a percentage to the cost of making a product to give the selling price
How to calculate cost plus pricing (mental)
Cost per unit + % mark up (e.g 20%) = selling price per unit
What does cost plus pricing not consider
That the product might not sell as competitors might be selling the same thing for less money
Advantage of cost plus pricing
Is guarantees a profit as the price is above the costs so you can’t make a loss, only profit
Competitor pricing
When a price is set based on prices charged by a competitor business for a similar or identical product.
E.g Tesco selling a brand of test for £4 and Aldi selling the same tea bags for £3.80
How does competitor pricing help maintain/grow market share
It will persuade customers to the business as it has the cheapest price in comparison with other businesses.
Customers will go to the cheaper business which helps the business to maintain/grow its market share
Disadvantage of competitor pricing
May mean that the businesses neglect other factors such as service and quality as they cut costs in order to be able to see products at a price similar to competitors
Penetration pricing
When a business is new to the market, a price is set lower than competitor businesses. This is a short term strategy to help break customer loyalties from trusted brands
Advantages of penetration pricing
Can be a promotional tool when a business or product first launched
Can help break customer loyalties with other brands
