Th3.4: Other Pricing Strategies

Question 1

What are the five other pricing strategies?

Answer 1

cost plus pricing
psychological pricing
market-led pricing
price skimming
penetration pricing

Question 2

Cost plus pricing

Answer 2

where firms simply work out their average costs and add a percentage increase, which determines the level of profit they make - size of increase depends on level of comp and barriers to entry

Question 3

Psychological pricing

Answer 3

where firms use the non-rounded prices to give an impression that the price is cheaper than it is e.g 99p

Question 4

Market-led pricing

Answer 4

firms can set prices simply by looking at prices charged by competition - they price their good close to other firms, since if it was higher people wouldn’t buy it and lower would lose profit

Question 5

Price skimming

Answer 5

when a product is initially launched, firms can set very high prices to cover research and development costs and keep demand at manageable levels - once product is no longer newest/best, price will be lowered

Question 6

Penetration pricing

Answer 6

when a product is first introduced the firm will set low prices to encourage people to use it for the first time - hopefully people will like it and continue to use it as price increases

Question 7

What is the problem with cost plus pricing?

Answer 7

does not consider the market

Question 8

What is the problem with market-led pricing?

Answer 8

no consideration of costs