Pricing Strategies (1.3.3)

Question 1

What is the Definition for Profit Margin?

Answer 1

The Difference Between your selling price and the cost of producing that unit.

Question 2

How many different Pricing Strategies are there and What are there names?

Answer 2

5 pricing Startergies
-Price Skimming
-Penetration Pricing
-Cost-Plus Pricing
-Phycological Pricing
-Competitive Pricing

Question 3

What is Price Skimming?

Answer 3

Hight initial price then lowered (e.g Apple)

Question 4

What is Penetration Pricing?

Answer 4

Low initial Price then raised (e.g. Netflix)

Question 5

What is Cost-Plus Pricing?

Answer 5

Adding on a % Mark-Up

Question 6

What is Phycological Pricing?

Answer 6

Priced to make Customers think its Cheaper e.g. £299 instead of £300

Question 7

What is Competitive Pricing?

Answer 7

Same Price or lower than competition

Question 8

Factors that affect price (5 Factors)

Answer 8

-Product Differentiation
-Strength of the Brand
-Amount of Competition
-Stage of the Product Life Cycle
-Cost of Production

Question 9

What are the Advantages of Price Skimming?
(4 Advantages)

Answer 9

-Allows you to cover R + D costs quickly
-Creates Higher-end brand image and increases customer loyalty
-Segments the Market and targets different customers and different price levels
-General Word-of-Mouth Marketing from early adopters.

Question 10

What are the Disadvantages of Price Skimming?
(3 Disadvantages)

Answer 10

-May reduce number of potential customers who are willing to buy product at high price
-May damage Brand Loyalty of early adopters who feel cheated when price drops later
-May attract competitors who can offer similar products at lower prices

Question 11

What are the Advantages of Penetration Pricing?
(5 Advantages)

Answer 11

-Increased Customer Interest
-Reduced Competition
-More Brand Loyalty
-Increased Market Share
-Quick adoption and diffusion of the Product or Service

Question 12

What are the Disadvantages of Price Skimming?
(3 Disadvantages)

Answer 12

-Increase likelihood of price war with competitors
-Concrete Pricing expectations among competitors who may not be willing to pay higher prices
-Customers may associate low prices with low quality

Question 13

What are the Advantages of Cost-Plus Pricing?
( 5 Advantages)

Answer 13

-Utilize Minimal Resources
-Helps cover costs
-Easy to understand
-Requires minimal external data
-Contributes to price stability

Question 14

What are the Advantages of Cost-Plus Pricing?
( 5 Advantages)

Answer 14

-Risk the consumers not valuing product at set price
-Inflexibility and inability to respond to consumer demand trends
-Limits Revenue growth through expansion
-Difficulty in accurately estimating costs
-Doesn’t take into account customer Demand or competitor Prices. Both which have significant Impact

Question 15

What are the Advantages of Phycological Pricing?
( 5 Advantages)

Answer 15

• Discourages Competition from rival companies
  -Drives greater attention to product
  -Attracts new buyers to the product
  -Offers transparency about all costs
  -Simplifies decision- making process for consumers

Question 16

What are the Disadvantages of Phycological Pricing?
( 5 Disadvantages)

Answer 16

-Requires optimal conditions for success
-Creates certain expectations of company
-Affects Brand Reputation
-uses Constant attention
-Offers no guarantee of success

Question 17

What are the Advantages of Competitive Pricing?
( 5 Advantages)

Answer 17

-Easy and simple to implement
-Reduces risk of losing customers or Revenue
-Leads to lower prices, Higher Quality and more variety
-Can be combined with other pricing stratergies or discount tactics
-Can increase profit margins, Loyalty and Brand reputation

Question 18

What are the Disadvantages of Competitive Pricing?
( 5 Disadvantages)

Answer 18

-Compromised product quality due to cutting costs in manufacturing process
-Risk for small businesses because often cant compete with large-scale businesses
-Inaccuracy in estimating product values
-Lack of focus on Customer
-Potential Lots of Revenue