Pricing strategies Flashcards
1
Q
Advantages of cost plus pricing
A
- A simple method to decide the price for a product as you just simply add up all the cost and then add profit which you want to earn which will give you the price for a product.
- Easy to add profit margins accordingly with how much revenue the business wants to generate
2
Q
Disadvantages of cost plus pricing
A
- Does not take into account the future demand of a product
- It also does not take into account the competitor actions and its effects on pricing of the product
3
Q
Advantages of predatory pricing
A
- It can force rival firms out of business
- If you’re a monopoly business, it can discourage other firms from entering the market
4
Q
Disadvantages of predatory pricing
A
- The business has to drop prices, meaning they will make a temporary loss.
- Will only work effectively if you’re a monopoly business (dominant business in the market)
5
Q
Advantages of psychological pricing
A
- Will help to generate more sales as the customer will think they are getting a better deal than other competitors
- It benefits both consumers and the business as both think they are getting a good deal
6
Q
Disadvantages of psychological pricing
A
- If customers are more rational than psychological pricing gives them credit for, then they may instead base their purchases on the value of underlying products.
- Can be relatively inconvenient
7
Q
Advantages of premium pricing
A
- There is a high profit margin with this method as you charge high prices
- Premium prices make people crave for your product and they’ll do anything to own it
8
Q
Disadvantages of premium pricing
A
- The cost of effective marketing is a serious premium pricing drawback. If the business owner’s aren’t eager to invest sufficient funds, it’s impossible to create a premium brand image.
- If you’re not an established business, premium pricing could limit your customer base, shrinks it and eventually, decreases annual income.
