PRICING STRATEGIES Flashcards
What is pricing
PRICING: A component of the marketing mix that concerns the amount that consumers pay for a good or service.
What are costs
COST: Any expenditure incurred in generating sales revenue.
What shouldn’t you mention in the exam
When talking about pricing in the exam, do not mention costs - as the meaning of costs.
For example:
The chair cost for the bleach at the shop was insanely high - Wrong
The price of the bleach at the shop was insanely high - Correct - This is correct as if it was a cost it would have some sort of direct correlation between making the business sales (Bleach would probably only be a COST for a cleaning company).
What are the 4 types of price strategies
PRICE SKIMMING
PRICE PENETRATION
COST PLUS PRICING
COMPETITIVE PRICING
What is price skimming
PRICE SKIMMING: Setting a high initial price for a product, to maximise most short term returns, before dropping the price to attract a wider market.
Examples: PS5’s were released by Sony originally for £500. The reason they were sold so high, was because Sony knows that they have a couple hundred thousand people that would buy for that price, but if you fast forward 12 months, Sony now sells the PS5 for £390 which opens up the market to new consumers.
Often used in high tech markets to attract early adopters
Pros: Allows the business to gain a premium price for those customers who are prepared to pay it.
Cons: Setting the initial price too high, may put off initial customers
What is price penetration
PRICE PENETRATION: Setting a low initial price in order to attract attention and gain market share, before raising the price in the future.
An example of this is when you see products like new biscuits. The company may put them at the price of £0.60 to get the attention of a good amount of people, they will then get them in love with their product, and eventually over time gradually raise the price.
Often used for mass market products - Where there is a big market full of alot of competition, and the business owners want to stand out from the stars in the market.
Pros: A strategy for gaining interest and market share
Cons: Consumers may be unwilling to pay a higher price
What is cost plus pricing
COST PLUS PRICING: Setting a target for the profit margin on each unit, and basing the selling price on the cost of production.
The businesses will see: How much they pay in manual labour, how much they pay for raw materials, and their other costs that are involved in producing a product. They will then add the profit margin that they choose on top - for example all costs plus 10% (the 10% is their profit).
Sustainable when the business has an advantage over the market due to low or no competition. This means they can choose a price without being massively judged against competitor pricing.
Pros: Can help ensure the producer meets their unit profit targets for each sale
Cons: Does not take into consideration consumers preferences or competitors selling prices.
What is competitive pricing
COMPETITIVE PRICING: Setting a selling price based on the selling prices of the competitors within the market.
Pros: Allows your price to not stand out in being too high or too low.
Cons: Price is not differentiation (it doesn’t allow you to take advantage of price penetration), which won’t allow the business to stand out for pricing. It also doesn’t take into consideration your costs. So you may be barely breaking even, or even making a loss.
