Pricing strategies

Question 1

Positive+ negative of penetration

Answer 1

The price is set low to begin with and increases over time, this encourages the customer to try a new product, but very little profit can be generated during the initial low price period

Question 2

Positive and negative of skimming

Answer 2

Sufficient ‘hype’ around a new product enables higher prices to be charged, which can increase profits. High initial prices can put off some customers.

Question 3

Positive+ negative of Competitive pricing

Answer 3

Price of the product is set similar or same to competitor, this avoids a price war, other elements of the marketing mix must be better than the competitions to ensure sales

Question 4

Positive+ negative of Destroyer pricing

Answer 4

The price is deliberately set extremely low for a period of time to force out competition, this increases their market share, this is illegal in many countries and is strictly regulated

Question 5

What is a pricing strategy?

Answer 5

A pricing strategy is the way in which a business decides the price they are going to charge for a product or service.

This definition highlights the importance of strategic decision-making in setting prices.

Question 6

Name five pricing strategies.

Answer 6

• Cost Plus
• Competitive
• Skimming
• Penetration
• Price Discrimination

Additional strategies include Destroyer, Loss Leader, Premium, Low, Demand Pricing, and Promotional.

Question 7

What is the advantage of the Cost Plus pricing strategy?

Answer 7

Simple to calculate and ensures costs are covered.

This strategy adds a markup to the cost of producing a product.

Question 8

What is the disadvantage of the Cost Plus pricing strategy?

Answer 8

May not consider market demand or competitor prices.

This can lead to pricing that is not competitive.

Question 9

What is the advantage of the Competitive pricing strategy?

Answer 9

Helps to attract price-sensitive customers.

This strategy involves setting prices based on competitors’ pricing.

Question 10

What is the disadvantage of the Competitive pricing strategy?

Answer 10

Could lead to price wars.

This can erode profit margins.

Question 11

What is the advantage of the Skimming pricing strategy?

Answer 11

Maximizes profits from early adopters.

This strategy sets a high price initially and lowers it over time.

Question 12

What is the disadvantage of the Skimming pricing strategy?

Answer 12

Limits the market size initially.

High prices can deter potential customers.

Question 13

What is the advantage of the Penetration pricing strategy?

Answer 13

Quickly attracts customers and increases market share.

This strategy sets a low price to enter a competitive market.

Question 14

What is the disadvantage of the Penetration pricing strategy?

Answer 14

Can result in initial losses.

Lower prices may not cover costs at the beginning.

Question 15

What is the advantage of the Price Discrimination strategy?

Answer 15

Maximizes revenue by charging different prices to different customers.

This can be based on factors like age, location, or time of purchase.

Question 16

What is the disadvantage of the Price Discrimination strategy?

Answer 16

Can lead to customer dissatisfaction if perceived as unfair.

Customers may feel they are being charged differently for the same product.

Question 17

Fill in the blank: The amount the customer pays the business for the product is called _______.

Answer 17

Price

This is a fundamental concept in understanding pricing strategies.

Question 18

What factors affect price?

Answer 18

• Costs of production
• Competitor pricing
• Market demand
• Customer perceptions
• Economic conditions

These factors play a critical role in determining pricing strategies.