Pricing Strategies Flashcards
What are pricing strategies?
the approach which a business decides on for setting the price of its products or service
What are the pricing strategies?
price skimming competitive predatory cost plus psychological penetration loss leader
What is cost plus pricing?
Involves adding a certain percentage to the average total cost of production. Usually around the 10% mark
What is price skimming?
Means charging a very high price then lowering it over time
What is competitive pricing?
meaning charging the same or a little less than prices of competitors
What is penetration pricing?
used to enter new markets. A lower price than the competition is set to try and gain large initial market share
What is psychological pricing?
used to make the price seem more attractive than it actually it by rounding it down.
What is predatory pricing?
tactics used by a dominant business to reduce competition. Prices are set at a low level below costs of production intended to drive competitors and new entrants
What are positives and negatives of cost plus?
+ always profit
- doesn’t consider competition
What are positives and negatives of price skimming?
+ initial high costs cover r and d costs, helps establish exclusivity and innovation
- customers may be put off, quality perception may deter over time
What are positives and negatives of competitive?
+ lower prices causes sales uplift and increased number of customers
- competitors could price themselves lower
What are positives and negatives of psychological?
+ increased sales, don’t exceed price elastic consumer barriers
- reduction in profit margin, if higher could make more
What are positives and negatives of penetration?
+ quick market share gain, low prices will attract customers, increased brand loyalty
- can originally damage quality, competitors may reduce prices making it difficult to increase
What are positives and negatives of predatory pricing?
+ drive competition out of the market, more sales
- illegal, short-term loss,
What are positives and negatives of loss leaders?
+ gain sales and footfall
- short term losses
What is loss leader pricing?
pricing your product at a loss in order to gain footfall and sales uplift of other products
What do pricing strategies depend on?
competition size PED shareholder views production cost contingency plans stage in product life cycle.
What is the office of fair trading?
responsible for investigating suspected abuses of monopoly powers and going into prohibited pockets
What does the OFT investigate?
collusive behaviour
abuse of market power
What is collusive behaviour?
2 or more businesses deciding to set prices higher in order to drive out competition.
