pricing strategies

Question 1

Several factors affect pricing decisions:

Answer 1

1. The marketing mix
2. Cover the cost
3. Acceptable to customers
4. Price elasticity of demand
5. Stage of the life cycle
6. Objectives
7. Level of competition
8. Strong USP

Question 2

The price of the product is affected by:

Answer 2

All of the other Ps in the marketing mix - e.g. during heavy promotion of a product, its price may be reduced

Question 3

The price is often set to:

Answer 3

Cover the cost of making the product (or buying it from a wholesaler) and to make a profit

Question 4

The price must be:

Answer 4

Acceptable to customers - it depends how price sensitive the target market is. Affluent consumers are less price sensitive than those at the other end of the scale

Question 5

The price elasticity of demand influences:

Answer 5

The pricing of the product. This depends on the availability of substitutes, the type of product, whether it’s an expensive purchase, and the strength of the brand

Question 6

The stage of the life cycle that the product’s in will also:

Answer 6

Affect pricing decisions - for example, if sales are declining then the price may be reduced

Question 7

The price has to be in line with the:

Answer 7

Business’s objectives.e.g. it might be aiming to increase its market share, make the maximum profit, or keep its brand image up-market

Question 8

The level of competition in the market influences:

Answer 8

Pricing decisions.

Question 9

If the price is set above that of competitor products without it being differentiated in some way by:

Answer 9

Having a USP then no one will buy it and it may bring the business bad publicity.

Question 10

If the price is too far below that of others, particularly the major players’, then customers will:

Answer 10

Question quality

Question 11

A product with a strong USP would be able to:

Answer 11

Command a higher price because it is highly differentiated from any competitor products

Question 12

Promotional pricing strategies for new products:

Answer 12

1. Price skimming
2. Penetration pricing
3. Cost-plus pricing
4. Predatory pricing
5. Competitive pricing
6. Psychological pricing

Question 13

Price skimming is when:

Answer 13

New and innovative products are sold at high prices when they first reach the market

Question 14

Consumers will pay more because the product has:

Answer 14

Scarcity value, and the high price boosts the product’s image and increases its appeal.

Question 15

Example of price skimming:

Answer 15

Technological products, e.g. computers, tend to be priced using this method

Question 16

In price skimming, prices are usually then:

Answer 16

Dropped considerably when the product has been on the market for a year or so - by this point everyone prepared to pay extra for being one of the first to own the product has got one.

Question 17

Competitors might have entered the market with:

Answer 17

Imitative products at lower prices - although a business can prevent this using patents or trademarks

Question 18

Some businesses use price skimming as:

Answer 18

A long term strategy to keep their brands more exclusive, e.g. Apple and Ray-Ban sunglasses

Question 19

With price skimming, potential customers can be put off by the:

Answer 19

Initial high price and customers who bought the product at its initial price may be annoyed and frustrated when it suddenly drops in price after launch

Question 20

Penetration pricing is:

Answer 20

The opposite of skimming. It means launching a product at a low price in order to attract customers and gain market share.

Question 21

Penetration pricing is especially effective in markets which are:

Answer 21

Price-sensitive, e.g. a new washing powder or food product

Question 22

Penetration pricing works best for businesses that can:

Answer 22

Benefit from lower costs when manufacturing large quantities of a product

Question 23

A problem with penetration pricing is that:

Answer 23

Customers may expect the low price to continue, so it’s difficult to raise it without losing customers. It can also damage how the brand image is perceived

Question 24

Price penetration isnt just for:

Answer 24

New products - it can be used as an extension strategy to prolong a product’s life

Question 25

Penetration can also be used to:

Answer 25

Target a more budget-conscious market segment.

Question 26

Example where penetration pricing can be used to target a more conscious market segment:

Answer 26

An airline might set up a no-frills, low-cost service in addition to its regular service.

Question 27

By targeting a more budget-conscious market segment:

Answer 27

They can appeal to a new segment of the market, whilst also keeping their existing customer base who are prepared to pay more, and maintaining their premium brand image

Question 28

One type of cost-plus pricing is:

Answer 28

When a firm adds a percentage mark-up to the costs of making or buying a single product (the unit cost). Price = unit cost + (unit cost/100 x mark-up)

Question 29

Predatory pricing is when:

Answer 29

A business deliberately lowers prices to force another business out of the market

Question 30

Example of predatory pricing:

Answer 30

A large nationwide business might target a successful but small local competitor by lowering their prices in that specific area until the small competitor goes out of business.

Question 31

With predatory pricing, once the competitor has gone:

Answer 31

It will raise its prices again

Question 32

Predatory pricing is illegal in:

Answer 32

EU and US laws

Question 33

Competitive pricing is:

Answer 33

When businesses monitor their competitors’ prices to make sure that their own prices are set at an equal or lower level

Question 34

Who use the competitive pricing method:

Answer 34

Supermarkets and department stores. Some stores will refund the difference in price if the product is cheaper somewhere else

Question 35

Psychological pricing bases the price on:

Answer 35

Customers’ expectations

Question 36

Example of psychological pricing:

Answer 36

A high price may make people think that the product is really high quality. An insignificant price change can have a big psychological impact on the customer, e.g. $99.99 seems a lot better than $100 even though its only $0.01 difference

Question 37

The internet has led to the rise of online retailers and price comparison sites. This is useful for customers as it:

Answer 37

Allows them to shop around and find the best deals more easily

Question 38

Online retailers need to be:

Answer 38

More price competitive, as its very easy for customers to compare prices for identical products

Question 39

If there are many substitutes of a similar quality available:

Answer 39

The cheapest online retailer will usually achieve the sale

Question 40

Online retailers may choose instead to:

Answer 40

Compete with other aspects of final pricing, such as offering free delivery or free returns, which affect the final price for the customer.

Question 41

Extra benefits may make the:

Answer 41

Customer more willing to pay a higher price for the product itself

Question 42

Price comparison sites make it:

Answer 42

Even easier for customers to compare prices for a product between many different retailers or suppliers

Question 43

Price comparison sites are very popular for:

Answer 43

Comparing the price of services such as car insurance, flight prices and the retail prices of popular goods

Question 44

Price comparison sites are popular as they:

Answer 44

Save customers time and effort in their search for the lowest price

Question 45

The consequence for retailers is that they:

Answer 45

Need effective information systems so that they’re aware of prices charged by their competitors, so they can be price competitive