Pricing strategies

Question 1

Pricing strategy

Answer 1

The approach the business takes when setting the price of its goods

Question 2

Price skimming

Answer 2

A business sets a high price for its product when it’s first introduced to the market.
-Effective when the brand is established and there is high demand for the product e.g apple iPhones
-High price pays off development and marketing costs quickly
-Price gradually lowers to ensure sales continue

Question 3

Cost plus pricing

Answer 3

The business adds a markup from the cost of production.
-The markup gives the business there desired profit
-Used by manufacturers of standalised goods e.g washing machines

Question 4

Penetration pricing

Answer 4

The business sets a low price for a new product
-Good if the business wants to quickly get market share
-Once they have enough customers they can start increasing the price

Question 5

Predatory pricing

Answer 5

The business sets prices so low that it drives competitors out of the market.
-It’s illegal but hard to prove

Question 6

Competitive Pricing

Answer 6

The business sets there prices based on competitor’s prices.
-Effective when in a highly competitive market and wants to maintain its market share
-Adjust price accordingly to remain competitive

Question 7

Psychological pricing

Answer 7

Takes into account customer’s emotions, beliefs, and attitudes toward the product
-Sets price at £9.99 instead of £10 as it is perceived as better value