Pricing Strategies

Question 1

Describe cost plus

Answer 1

the business calculates the unit cost of a product and then adds a percentage mark-up for profit e.g it costs PC world £300 to purchase a laptop and they then mark-up by 50% and sell it to customers for £450

Question 2

Advantages of cost plus

Answer 2

a quick and easy way of setting the selling price

ensures that total costs are covered and a profit is generated

Question 3

disadvantages of cost plus

Answer 3

doesn’t cover indirect costs e.g. other expenses such as rent

doesn’t take external factors into account e.g. increasing prices during boom periods to maximise profits

Question 4

describe the competitive pricing strategy

Answer 4

the price of a product is set similar to the competitors e.g. fuel prices

Question 5

advantages of the competitive pricing strategy

Answer 5

avoids a price war

encourages competition, which improves the market as a whole

Question 6

disadvantages of the competitive pricing strategy

Answer 6

other elements of the marketing mix must be better than the competition’s to ensure sales