pricing strategy Flashcards
why is choosing the right pricing strategy essential for a business?
in order for them to be profitable, competitive, and successful in the long run
what are some examples of pricing strategy?
cost plus
price skimming
penetration
competitive
predatory
psychological
competitive
predatory
psychological
what is cost plus?
the business calculates the cost of production and then adds a markup to determine the final price
what does the markup cover?
the cost of production plus the businesses desired profit margin
what is the formula to calculate cost plus?
unit coat + (mark up percentage x unit cost)
what is the benefit of cost plus?
it is simple to calculate
what is cost plus commonly used by?
manufactures that produce standardised goods e.g washing machines
what is price skimming?
the business sets a high price for a new product/service when it is first introduced to the market
when is price skimming effective?
when an established brand is a high demand for it e.g successive models of apple’s Macbook air
what does the high price in price skimming help a business to do?
recover its development and marketing costs quickly
what will the business do a while after entering the market with a price skimming strategy?
lower the price to ensure sales continue
what is penetration?
the business sets a low price for new products/services when it is first introduced
when is penetration effective?
when a business wants to quickly capture market share and attract price-sensitive customers
what is predatory?
the business sets prices so low that it drives its competitors out of the market
why is predatory pricing stratergy illegal in some countries?
it is considered competitive and harms customers by reducing choice in the market
what is competitive pricing strategy?
the business sets its prices based on its competitors’ prices
when is competitive pricing effective?
when a business is in a highly competitive market and wants to maintain its market share
what must a business do when using a competitive marketing strategy?
continually monitor its competitors’ prices and adjust its prices accordingly to remain competitive
what is physiological pricing?
it takes into account the customers emotions beliefs, and attitudes towards the products and services e.g businesses may set their prices at £9.99 instead of £10 as this is perceived as better value
why is understanding their customers, competitors, and costs important?
because they can set prices that maximise revenue and profitability
why much retailers continually adapt?
to remain competitive in these markets
what is the main benefit of online sales?
it is accessibly 24/7
how has pricing adapted now retailers are shifting their focus to online sales?
with the use of dynamic pricing
what does dynamic pricing mean the business is able to do?
adjust prices in real-time bases on factors like demand and competition
when are prices higher when using dynamic pricing?
when the supply is lower (vice versa)
why may retailers offer different prices online compared to in store purchases?
to incentitise customers to shop online, meaning the retailer requires fewer stores
what will having fewer stores mean for a retailer?
reduces the retailers costs
how has pricing changed?
to refect the rise in price comparison through the use of price-matching policies
why do retailers offer to match their competitors price?
to prevent customers switching to a competitor with lower prices
what are pricing algorithms used for?
to monitor the prices of competitors and adjust their prices automatically
