Pricing Strategies Flashcards
What is price
The money charges for a product
What are the 6 pricing strategies
1.cost plus
2.price skimming
3.penetration pricing
4.predatory
5.competitive
6.psychological
What’s cost plus
If a business wants to operate profitably, then by definition it’s pricing must take some account of the costs of production or operation
What is a benefit of cost plus
-prevent loses
-each product has a calculated profit
-Saves a significant amount of time
What is a drawback of cost plus
-may miss out on opportunities to maximise revenue
-lowering cost lowers prices
-discouraging people from driving for greater efficiency
What is price skimming
This occurs if a relatively high price is charged when a product is launched,most appropriate when demand is price inelastic
What is a benefit of price skimming
-higher upfront sales figure to cover research and development costs
-potentially higher returns on your investment by maintaining interest for longer
What is a drawback of price skimming
-only works with an in elastic demand curve that doesn’t respond to price change
-doesn’t work if competitions do the same
What is penetration pricing
a business charges a low price to gain market share, price elastic
What are the benefits of penetration pricing
-Win customers from competitors
- limited competition
-become a market leader
-build relationships with key partners
What is a drawback of penetration pricing
-low customer loyalty
-poor brand image
-inefficient long term strategy
What is predatory pricing
Prices deliberately set low by a dominant competitor in the market in order to restrict or prevent competition
What are the benefits of predatory pricing
-drastically lowers price to kick competitors out of market
-maintain existing customers and allows the expansions of customer base
What is a drawback of predatory pricing
-loss of product
-share price rises due to short term loss
What is competitive pricing
Setting of prices based on what rivals are charging
