Pricing strategies Flashcards
What is the cost plus pricing strategy?
A percentage added to the price to manufacture a good.
What is the cost plus pricing calculation?
Price= unit cost+ (mark up x unit cost)
What are the benefits and drawbacks of cost plus pricing?
Benefits:
- Guarantees a profit.
Drawbacks:
- Doesn’t take into account competitors price.
- May be difficult to identify all the costs involved.
What is price skimming?
Price goes from high to low.
What is the benefit and drawback of price skimming?
Benefit:
- Creates a perception of a must have product.
- High prices will be charged in a market where people will be able to buy them.
Drawbacks:
- Product quality must justify price.
- Likely to attract lots of competitors in the market.
What is penetration pricing?
When a business charges a low price to begin with and then increases it.
What are the advantages and disadvantages of penetration pricing?
Benefits:
- Raise brand awareness.
- Increase market share.
Disadvantages:
- Business may make a loss for the first few months.
- Customers may have brand loyalty to other businesses, so a low price wont influence them.
What is predatory pricing?
Aim to eliminate any competition from the market by charging such a low price that competitors are pushed out of the market.
What are the advantages and disadvantages of predatory pricing?
Benefits:
- It minimises competition.
- It can allow a business to dominate the market.
Drawbacks:
- It can’t be used long-term.
- It is illegal and can have a negative impact on a businesses reputation.
What is the competitive pricing strategy?
Due to operating in a highly competitive market, a business will consider their competitors pricing when setting their own.
What are the advantages and disadvantages of competitive pricing?
Benefits:
- It is one of the safest strategies.
- Price wars can be avoided.
Drawbacks:
- Could potentially risk running at a lost especially if your costs are higher than competitors.
- The price may not be equal to the value.
What is psychological pricing?
Where a business uses pricing to influence a customers spending.
E.g. set price below a whole figure such as £9.99 instead of £10
What are the advantages and disadvantages of psychological pricing?
Benefits:
- It encourages consumer spending.
- It simplifies the decision making process for consumers.
Drawbacks:
- It requires demand to be consistent.
- Consumers may feel manipulated.
