Pricing Strategies Flashcards
What are price strategies?
The price must be what the customer feels is good value for money (this is not the same as being cheap).
The price is also what the customers is willing to pay.
Cost-plus pricing-use.
Fixing a price by adding a % profit margin to the cost of production of the good or service.
Businesses need to make a profit to survive in the long term e.g. Most businesses.
Penetration pricing-use.
A new product is launched at a very low price. The price is then raised once the product is established on the market.
This is used by new companies or for new products.
It’s used to gain market share more quickly and easily or enter a market that is very difficult to get into e.g. Mars delight (when launched).
Price Skimming-use
A new (unique) product is launched at a very high price. The price is then lowered once the product is no longer new.
It’s used to recoup development costs and fund further research before competition enters the market e.g. Electronic products (DVD recorders).
Price Discrimination-use
It’s setting a different price for the same product in different segments of the market.
It’s used to maximise sales revenue and profit in each different as people are prepared to pay different amounts e.g. Train, telephone, air travel.
Promotional pricing-use
The price is dropped for a short period of time to attract customers or to clear stock.
This is used to increase sales in the short term or to clear space for new stock e.g. Clothes, Christmas goods.
Destroyer pricing (predator)- use
A business drops its price to loss making levels in a competitive market to drive out competition.
It’s used to put rival firms out of business, e.g. Newspapers (e.g. The sun 30p on a weekday).
Loss leader- use
A business sells one or more of its products at a loss-making price in order to attract customers into the store or to sell additional products and services to the customer.
Premium pricing
The product is sold at a high price to give a luxury image.
The goal is to create the perception that the products must have a higher value than competing products because the prices are higher e.g. Rolex.
Competitive pricing-use
The price of the product of the product is similar to the price of competitive products e.g. Price matching.
High Pricing-use
The company or manufacturer keeps the price of the product on the higher side when compared to similar products (or competitor) in the market.
Psychological pricing-use
The price is set just below a major price point so the product seems cheaper than it is e.g. £9.99 rather than £10.
Discuss cost-plus
Advantages-
Each sale makes a guaranteed profit.
Disadvantage-
Ignores other factors in the pricing decision e.g. What customers are prepared to pay, level of competition in the market.
Discuss premium pricing
Ads-
Gives the product a luxury image so increases demand from wealthy consumers.
Disadvantage-
High price may put some people off from buying so volume of sales will be lower.
Discuss destroyer pricing
Ads-
Removes a competitor from the market if they cannot match the price, making the business’ position in the market more dominant.
Disadvantage-
A large competitor in the market will be able to match the price drop and this could lead to a price war meaning the volume of sales is not changed but less revenue is made by both firms.
May be investigated by the CMA for illegal practices, and can be fined if found guilty.
