pricing strategies Flashcards
cost plus pricing
business calculates the unit cost of a product then adds a percentage for profit
a - quick and easy way of settling price
- ensures that all total costs are covered
d - doesn’t cover indirect costs
- doesn’t take external factors into account
competitive
price of a product is set similar to the competitors
a - avoids price war
- encourages competition which improves market
d - other elements in the marketing mix must be better to ensure they are chosen over competitors
skimming
price is set high to begin with and lowers over time
a - sufficient hype around a new product allows a higher price to be charged
- lack of competition allows maximum prices to be charged
d - high initial prices can put off customers
- leads to low initial sales
penetration
prices set low to begin with and rise over time
a - encourages customers to try a new product
- business hope to gain repeat customers once the price rises
d - very little profit can be generated during the beginning
price discrimination
prices change based on a discriminatory factor (age)
a - ensures product appeals to different market segments
- allows for high profit margins on some price brackets
d - harder to budget for sales revenue in advanced
destroyer
price is set deliberately low for a period of time to force out competitors
a - reduces competition
- increases market share
d - could breach laws
- can only be used by large companies that can afford a loss
loss leaders
price of some products is set unprofitably low to entice customers in to buy other products
a - creates greater footfall
- encourages repeat customers
d - risk on profits for company
premium
price is permanently set higher than competitors
a - creates an image of exclusivity and high quality
- attracts a market of customers
d - excludes other customers who may not be able to afford
