the marketing mix: price

Question 1

Why business adopt new pricing strategies?

Answer 1

• try to enter new market
• try to increase market share
• try to increase profits
• make sure all costs are covered
• target profit earned

Question 2

Cost-plus pricing

Answer 2

is the cost of manufacturing the product plus a profit mark up

Question 3

Advantages of Cost-plus pricing

Answer 3

• easy to apply
• different profit mark ups could be used in different markets
• each products earns a profit

Question 4

Disadvantages of Cost-plus pricing

Answer 4

• Lose sales, if higher than competitor’s price
• total profit only made, if sufficient units of the product sold
• no incentive to reduce cost

Question 5

Competitive pricing

Answer 5

is when the product is priced in line with or just below competitors prices to try to capture more of the market

Question 6

Advantages of Competitive pricing

Answer 6

• Sales likely to be high, as price is realistic and product is not over or under priced
• Avoids price competition
• used when it is hard for customers to differentiate products between 2 businesses

Question 7

Disadvantages of Competitive pricing

Answer 7

• if costs of production is higher for one business than the others, (higher quality), competitive pricing leads to losses being made
• deep research is needed to figure out a price for a product, which is time consuming and takes a lot of money

Question 8

Penetration pricing

Answer 8

is when the price is set lower than competitors prices in order to be able to enter a new market

Question 9

Advantages of Penetration pricing

Answer 9

• Often used for newly launched products
• Sales increases quickly and product enters market successfully
• Market share builds up quickly

Question 10

Disadvantages of Penetration pricing

Answer 10

• Product is sold at low price, profit per unit is low
• Customers might get used to low prices and reject the product, if business raises the price later
• Might not be appropriate for a branded product, with reputation for quality

Question 11

Price skimming

Answer 11

is where a high price is set for a new product on the market

Question 12

Advantages of Price skimming

Answer 12

• helps establish a product is good in quality
• High research and development costs can be covered faster
• If product unique, higher price gained, before competitors start making similar products

Question 13

Disadvantages of Price skimming

Answer 13

• High price may discourage some potential customer form buying it.
• High profitability might encourage more competitors to enter the market

Question 14

Promotional pricing

Answer 14

is when a product is sold at a very low price for a short amount of time

Question 15

Advantages of Promotional pricing

Answer 15

• useful for getting rid of unwanted inventory

- can renew interests if product sales are falling

Question 16

Disadvantages of Promotional pricing

Answer 16

• Revenue lower

- Lead to price competition with others, so business might have to reduce prices again

Question 17

Dynamic pricing

Answer 17

is when businesses change product prices, usually when selling online, depending on the level of demand

Question 18

Price elastic demand

Answer 18

is when customers are very sensitive to changes in prices

Question 19

Price inelastic demand

Answer 19

is when customers are not very sensitive to changes in